Withdrew money from IRA, paid 20% in federal tax and used remainder to pay off loan in my current 401k with my employer. do I need to pay the 10% penalty?

[2jacobsadders]

loan payoff was in 401k with current employer.

[MinhT · Accepted solution]

Yes, if you are under the age of 59 1/2 at the time of the withdrawal from the IRA. you have to pay the early withdrawal penalty of 10% in addition to income tax on the amount withdrawn. To withdraw from the IRA to pay your 401(k) loan is not an exception to the early withdrawal penalty.

The 20% federal tax withheld will be reported on your form 1099-R and will help alleviate the amount of tax due on the withdrawal.