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If I have to make a withdraw from my 401K to pay a court…

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If I have to...

If I have to make a withdraw from my 401K to pay a court settlement is there a way I can avoid the 10% penalty?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

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I don't think so

Submitted: 1 month ago.Category: Tax
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Answered in 3 minutes by:
1/2/2018
Tax Professional: Lev, Tax Advisor replied 1 month ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,362
Experience: Taxes, Immigration, Labor Relations
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Generally, the amounts an individual withdraws from a retirement plan before reaching age 59½ are called ”early” or ”premature” distributions.

Individuals must pay an additional 10% early withdrawal tax unless an exception applies.

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Tax Professional: Lev, Tax Advisor replied 1 month ago

.

There are certain exceptions to this additional 10% tax. The following six exceptions apply to distributions from any qualified retirement plan:

  • Distributions made to your beneficiary or estate on or after your death.
  • Distributions made because you're totally and permanently disabled.
  • Distributions made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
  • Distributions to the extent you have deductible medical expenses that exceed 10% of your adjusted gross income.
  • Distributions made due to an IRS levy of the plan under section 6331.
  • Distributions that are qualified reservist distributions. Generally, these are distributions made to individuals called to active duty for at least 180 days after September 11, 2001.

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

  1. Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental defined benefit plan if you were a qualified public safety employee (state or local government) who separated from service in or after the year you reached age 50.
  2. Distributions made to an alternate payee under a qualified domestic relations order, and
  3. Distributions of dividends from employee stock ownership plans.

Please verify if any may be used in your situation.

Let me know if you need any help with determination.

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