What should I do about tax from an early 401(k) withdrawal?
Money taken from a 401(k) or IRA before age 59 and a half is usually taxed as income, plus a 10% extra tax. Some exceptions apply, like a levy by the IRS or big medical bills.
The tax withheld from the withdrawal may not be enough. You may need to make estimated tax payments.
Exceptions include total disability, leaving your job after 55 (for a work plan), medical costs over 7.5% of income, and an IRS levy on the plan.
Report the extra tax on Schedule 2 and, in some cases, Form 5329.
Key facts
- Your Form 1099-R and its distribution code
- How much was withheld
- Your age at the time
- Whether an exception fits
- Whether you need estimated payments
Options that may help
An exception can remove the 10% extra tax.
Pay during the year so you don't owe a big bill.
If you owe at tax time, set up a plan.
Results depend on your situation. Not every case qualifies.
Common questions
If the IRS levies my 401(k), do I pay the 10%?
No. Distributions made because of an IRS levy are an exception to the 10% extra tax.
Source: IRS: Topic 558, Additional tax on early distributions
General information, not tax or legal advice. You can contact the IRS yourself for free at irs.gov.