401K Withdrawel 2017

[2008lyndarick]

We took money out of my husbands 401K  I suddenly was separated from my job at the end of 2016 I'm 58 and he's 57 Can we avoid the penalty or does it have to be him that separated from his job?

[DoninGA]

It was a withdrawal from his 401(k) account so he has to be age 55 or older and separated from the company providing the 401(k) account.  So there will be a 10% early withdrawal penalty assessed on the 2017 Form 1040.

[2008lyndarick]

Thank you  I thought so but that;s why I wanted an expert answer

[Opus 17]

I'm slightly confused.  

Normally, you can't withdraw from a 401(k) while you are still employed, except for a hardship withdrawal.  If he made a hardship withdrawal but still works for the sponsoring employer, then you will be subject to regular income tax plus the penalty because the withdrawal was not made after he was separated from service.

If he also separated from service with his plan sponsor so this was a regular withdrawal, and he separated before the year he turned 55, then it is also a non-qualifying withdrawal and subject to the penalty.

But if he separated from service from the sponsor of this account in or after the year he turned 55, then it is not subject to the penalty, because he would qualify under the separation rule.

[VolvoGirl]

Could it have been a 401K loan?  People get Loans and withdrawals confused all the time.  You don't report loans and don't get a 1099R for loans.

[MinhT · Accepted solution]

The exception only applies if he was separated from his employment.