Taking a withdrawal from your 401k plan is relatively easy as long as you qualify to remove money. The Internal Revenue Service only allows 401k withdrawals if you are no longer employed by the company, over 59 1/2 years old, permanently disabled or suffering an immediate and heavy financial burden. Distributions when you are under 59 1/2 years old are considered nonqualified withdrawals. Your 401k plan has flexibility on what it defines as an immediate and heavy financial burden. Once you have taken your distribution, you have to report it on your income taxes properly to avoid paying interest or penalties to the IRS.
1. Complete the required paperwork to make a withdrawal from your 401k plan. Your 401k plan administrator will give you copies of any distribution forms you have to complete. Once you turn in the forms, the money will be disbursed to you or the account you designate, and your 401k plan will mail you a Form 1099-R at the end of the year to document your distribution.
2. File your income taxes with Form 1040 or Form 1040A to report your 401k plan distribution. On line 12b of Form 1040A or line 16b of Form 1040, report the amount as a taxable pension and annuity distribution.
3. Complete Form 5329 to calculate your early withdrawal penalty if you took your distribution before age 59 1/2. Once you have figured the penalty, copy it to line 58 of Form 1040. If you have an exception for the early withdrawal penalty, such as retiring after turning 55 years old, report it on Form 5329.
4. Report the amount of federal income taxes withheld from your 401k plan withdrawal on line 61 of Form 1040 or line 38 of Form 1040A. Your 401k plan withdrawal federal income tax report appears in box 4 of Form 1099-R. If you forget to include this amount, you do not receive credit for the amount withheld.
Items you will need
- IRS Form 1040 or 1040A
- IRS Form 5329
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