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Member

Am I subject to a 10% penalty when I took a 401K Dsitribution the same year I retired.

I took a 401K distribution in May of 2017 for my daughters wedding. This distribution was Federally taxed at 20%. I subsequently retired in that same calendar year in October of 2017 at the age of 59.

My question surrounds the 1099R that I received which had a Distribution Code of a 1 (Meaning the 10% penalty applies). Is there any way around this penalty since I retired within that same calendar year....Any assistance would be greatly appreciated.

3 Comments
Catalyst V

Am I subject to a 10% penalty when I took a 401K Dsitribution the same year I retired.

Were you 59 1/2 years old at the time of the withdrawal?   If not, that's why the Code is 1 in Box 7 and the penalty is being computed.

Member

Am I subject to a 10% penalty when I took a 401K Dsitribution the same year I retired.

No as I don't turn 59 and a half until the end of April 2018, when I retired in October I was 59 and I know there is a rule for taking funds from your 401k when your over 55 and retired with no 10% penalty. The withdrawal was in May of 2017 which was 5 months prior to retiring. I was hoping that since I retired the same calendar year I would be able to avoid the 10% penalty.
TurboTax Specialist

Am I subject to a 10% penalty when I took a 401K Dsitribution the same year I retired.

Unfortunately, timing is everything. Since you are over 55, you would have been okay if you had waited until after you stopped working for your employer to take the distribution. For a discussion of this and other exceptions to the early distribution penalty, please see Topic Number 558 - Additional Tax on Early Distributions from Retirement Plans Other Than IRAs.