Former employer notified stating my 401k vested account balance (<$1,000) must be distributed from the Plan, per plan rules. Is there 10% Tax Penalty? Age 42

[lp020981]

Is this considered 'Section 457 Plan Distributions' in the Turbo Tax site, which would lower my tax bill?

[dmertz · Accepted solution]

Yes, this would be an early distribution subject to a 10% early-distribution penalty.  You can avoid the penalty by rolling the distribution over to a traditional IRA.  The plan is required by law to offer the opportunity for you to request that the distribution be moved to a traditional IRA by direct rollover.  A direct rollover avoids mandatory tax withholding.