Even though an early distribution occurred against your will, taxpayers have the option to Rollover qualified funds into an Individual Retirement Account (IRA). The rollover must occur within 60 days and the funds will maintain its tax-deferred status and the penalty would not apply. "Most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax. Generally, the amounts an individual withdraws from an IRA or retirement plan before reaching age 59½ are called "early" or "premature" distributions. Individuals must pay an additional 10% early withdrawal tax unless an exception applies. See this IRS link Retirement Topics - Exceptions to Tax on Early Distributions to see the exceptions available. Form 5329 must be completed to claim a penalty exception.
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