5.3 Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.): Types of Plans
If you were born before January 2, 1936, or are the beneficiary of a participant born before January 2, 1936, you may be able to elect optional methods of figuring the tax on lump-sum distributions you received from a qualified retirement plan.
A lump-sum distribution is the distribution or payment, within a single tax year, of an employee's entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans. The distribution must have been made under specific conditions. For details, refer to Tax Topic 412 which discusses Lump-Sum Distributions or Publication 575, Pension and Annuity Income.
Yes, you need to include in income the total amount of your 401(k) distribution reported on Form 1099-R (PDF),Distributions From Pensions, Annuities, Retirement on Profit-Sharing Plans, IRAs Insurance Contracts, etc. In addition, if the distribution occurs before you are age 59 1/2, you may need to pay a 10 percent additional tax on early distributions from qualified retirement plans unless you meet one of the exceptions in Publication 575, Pension and Annuity Income. You will include the federal income tax withheld on the appropriate line of your federal tax return along with any other federal income tax. Form 5329 (PDF) and instructions and Tax Topic 558 and Tax Topic 412 are available for further guidance.
If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan as well as other plan rules. Publication 560 and Publication 575 and Tax Topic 424 and Tax Topic 558 are available for further guidance.
If the amount rolled over was the net amount, that is, the amount of the distribution less the tax withheld, then the 20% withholding amount not rolled over is included in gross taxable income and may be subject to a 10 percent additional tax on early distributions from qualified retirement plans. Use Form 5329 (PDF), Additional Taxes on Other Qualified Plans (including IRA's), and Other Tax-Favored Accounts, to report the penalty.
If the amount rolled over was the gross amount, that is, you added an amount equal to the withholding to the amount that was rolled over, you would not add any of that amount to gross taxable income this year or owe a 10 percent additional tax on early distributions from qualified retirement plans. Publication 575 and Publication 590 in addition to Tax Topic 412 and Tax Topic 558 and Form 5329 Instructions are available for further guidance.
In most cases, if you withdraw funds from your 401(k) plan before you are 59 1/2, you must pay the 10 percent additional tax on early distributions from qualified retirement plans on any amounts that are not rolled into an IRA. However, there are some exceptions listed in Publication 560, Retirement Plans for Small Business, and Publication 575, Pension and Annuity Income. You would not have to pay the 10 percent additional tax, for example, if you received the distribution after you left the company and you left the company during or after the calendar year in which you reached age 55 and your departure from the company qualifies as a separation from service. Tax Topic 412 and Tax Topic 558 are available for further guidance.