Question

If I experienced a job termination, do I need to pay the 10% on my employer retirement plan withdrawal?

Answer

It depends on your age. The 10% early-distribution penalty doesn’t apply to distributions made to an employee:

  • After separation from service
  • After reaching age 55
  • After reaching age 50, if you’re a qualified public safety employee. A public safety employee is a state or local employee who provides one of these:
    • Police protection
    • Firefighting services
    • Emergency medical services

You qualify for this exception if you meet both of these conditions:

  • The distribution is made after you’ve separated from service with the employer maintaining the plan.
  • The separation from service occurs during or after the calendar year in which you reach the age requirement.

Other common exceptions include payments:

  • Received after reaching age 59 1/2
  • Allocable to investment in the contract before Aug. 14, 1982
  • Paid after your disability or death
  • Received as part of a series of substantially equal periodic payments over your life or life expectancy

To avoid the penalty, you should roll the distribution from the employer plan into an IRA. You must do this within 60 days of the distribution.

Also, the additional 10% tax doesn’t apply to distributions you take if both of these are true:

  • You’re a qualified reservist.
  • You’re called to active duty for at least 180 days.

Related Topics

Related Resources

Top IRS Audit Triggers: Nine Tax Mistakes to Avoid

What triggers the IRS to audit a tax return? Learn how common tax mistakes and errors can be a red flag and affect your chances of being audited by the IRS.

What are the current tax rates?

Find the current percentages for federal income tax rates, capital gains tax rates, Social Security tax rates and more from the tax experts at H&R Block.

The Complete Guide to the W-2 Form

The key to understanding your w-2 form is decoding the boxes and numbers. Learn how to read your w-2 form with this box-by-box infographic from H&R Block.

Form 8863

The tax experts at H&R Block outline how students and parents can file Form 8863 and document qualified expenses. Read about Form 8863 here.