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

IRS Notice CP22H – Adjustment to Your Shared Responsibility Payment

The IRS adjusted your Shared Responsibility Payment and you owe taxes. Learn about notice CP22H and how to address it with help from the experts at H&R Block.

Five Clues of Fraud – What to Look For On Your Credit Report

Do you know how to read a credit report? H&R Block tax pros have prepared the top 5 items you should look for when conducting a credit report review.

How Form 1098-C Applies to Your Vehicle Donation Deduction

Donating a qualified vehicle to a charity? Learn how Form 1098-C is used to report the details of your donation and how it affects your deduction.

IRS Letter 728 – Current Balance Due

Your IRS balance due has been assigned to a Revenue Officer. Learn more about IRS letter 728 and how to handle it with help from the experts at H&R Block.