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When is a 401k Distribution Not Subject to the 10% Penalty?

 

There are only a couple of situations where the IRS will waive the 10% 401k early withdrawal penalty, i.e., a withdrawal prior to the participant reaching age 59.

  • Amount of your unreimbursed medical expenses greater than 7.5% AGI ( IRC 72(t)(2)(B) ).

  • There is a Qualified domestic Relations Order (QDRO) from the courts that mandate funds from your account go to a former spouse, child, or dependent ( IRC 72(t)(2)(C) ).

  • You have separated from service and were at least 55 years of age when you did so (or separated from service in the year in which you turned 55) ( IRC 72(t)(2)(A)(v) and 72(t)(10) ).

  • You have elect a Section 72(t) distribution.

  • You are totally disabled. (The key to the disability exception seems to lie in the permanence of the condition, not the severity. Therefore, to claim this exemption you have to furnish not only information proving that you are totally disabled, but also information on the permanence of the disability.) ( IRC 72(t)(2)(A)(iii) )

  • You have died and your beneficiary gets the money ( IRC 72(t)(2)(A)(ii) ).

  • You have made contributions under special automatic enrollment rules that are withdrawn pursuant to your request within 90 days of enrollment ( IRC 414(w)(1)(B)).

  • Certain distributions to qualified military reservists called to active duty (IRC 72(t)(2)(G) )

  • Because of an IRS levy of the plan ( IRC 72(t)(2)(A)(vii) )

SOURCE: 401k Help Center

For Professional Consultation Services Contact:
Executive Benefit Plans, Inc.
Suite 1188
1186 Route 56 East
Apollo, PA 15613-9725 USA

Phone: 800-622-2411 or Fax: 724-478-1688
E-mail -
info@benefitplans.com

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM

 

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