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nannywanda · Jan 23, 2009, 09:52 AM

I was laid off this year permanently and had to take all my 401K as a lump sum distribution but I don't have a clue how I am suppose to file this on my taxes. I use for 1040. Where on that form do I report this?
Thanks
nannywanda

ScottGem · Jan 23, 2009, 10:08 AM

First, you did NOT have to take all the 401K in a lumpsum distribution. You could have elected a rollover into an IRA. But I suspect 60 days have past since you received the distribution so its too late.

You should get a 1099-R from the plan listing the taxable income from the distribution. This goes on line 16a-b of your 1040. You may also be subject to a 10% penalty for early withdrawal. This is reported using Form 5329 on line 59 of your Form 1040.

nannywanda · Jan 23, 2009, 10:38 AM

Thanks Scott. This was a great help and you are right I didn't have to take it all out but I hadn't been in it that long so it wasn't much. I just did not know how to file it. Thanks so much for the help.

AtlantaTaxExpert · Jan 23, 2009, 11:33 AM

Note that even if your exemptions, deductions and credits completely eliminate any income tax liability, you will STILL pay the 10% Early Withdrawal Penalty.

The 10% Early Withdrawal Penalty is a punitive tax, designed to act as a deterrent to those who want to withdraw the money to spend on lifestyle rather than on retirement.

nannywanda · Jan 26, 2009, 12:35 PM

If when I file my taxes and eliminate all taxes owed, I know I will still have to pay the penalty. Will they take that penalty out of any refund I may have coming or will I have to pay that separately?

ScottGem · Jan 26, 2009, 12:41 PM

The 10% is added to the total tax that you owe, which is then deducted from the total tax that you have already paid via withholding or estimated payments. If the tax owed is greater than the tax paid, you will owe, otherwise you will get a refund.