401k distribution after retirement

Forum|Forum|4 years ago
February 4, 2022
2 replies
16 views

My wife recently retired (age 55) from teaching and took out some money from two different 401k funds. I was under the impression that if you retire or separate from a company that you are not supposed to pay a penalty tax for early withdrawal. I believe that I have paid too much in taxes because of the penalty for early withdrawal. How do I check this and fix it in turbo tax if it is a problem. I can't find anywhere to indicate my wife retired or that I should not have to pay a penalty. Maybe, I have paid the correct amount, but it looks like I have paid 20% on each of the distributions and I thought it would only be 10%

Opus 17

Level 15

You always pay regular income tax on all distributions from a tax-free retirement account. That might be 10%, 12%, 22%, or even higher, depending on your filing status, deductions, and overall income. You pay an additional 10% penalty if the withdrawal is considered early. You are correct that money can be withdrawn from a 401(k) (or in this case it is probably a 403B) without the penalty, after the employee separates from service if they are 55 or older, but the withdrawal is still subject to regular income tax. To check if you were assessed a penalty, look to see if your tax return contains a form 5329. If it does, then you entered something about the 1099-R incorrectly.

Whatever money was withheld from the withdrawal at the time is only an estimate of the final tax amount. The final tax amount is determined by your total income and other tax situations. You get credit on your return for the withholding but you may owe additional income tax.

dmertz

Level 15

The age-55 exception to the early-distribution penalty only applies to the distribution from the plan provided by the employer from which she separated from service in the year that she reached age 55, not from the other plan (unless she separated from service from both employers in the year she reached age 55). The Form 1099-R from the plan of the company from which she separated from service in the year she reached age 55 should have a code 2 in box 7 and the Form 1099-R from the other plan should probably have code 1 in box 7.

She does not qualify for the age-55 exception on any distribution received from a plan provided by an employer from which she separated from service before the year she reached age 55.