Early Distributions from 401(k) Plans

Generally, distributions from a 401(k) plan are subject to taxes in the year they are distributed.

Early distributions (before age 59 1/2) are generally subject to an additional tax. The additional tax is 10% of the amount of the early distribution.

There are a number of exceptions where this additional tax will not apply even when the distribution is receive before reaching age 59 1/2.

For example:

  • Distributions made due to the employee having a qualifying disability.
  • Distributions made to an employee after separation from service if the separation occurred during or after the calendar year in which the employee reached age 55.
  • Distributions made because of an IRS levy on the plan.
  • Distributions made as part of a series of...
    • substantially equal periodic payments
    • beginning after separation from service and
    • made at least annually for the life (or life expectancy) of the employee or the joint lives (or life expectancies) of the employee and his or her designated beneficiary.
    • Under this exception, the payments (except in the case of death or disability) must continue at least 5 years or until the employee reaches age 59 1/2, whichever is longer.

Qualified Reservist Early Distributions

The additional 10% tax on early distributions does not apply to a qualified reservist distribution.

A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or member of the National Guard who has been called to active duty for a least 180 days or for an indefinite period.

All or part of a qualified reservist distribution can be recontributed to an IRA.

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