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February 3, 2024
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Former employer notified stating my 401k vested account balance (<$1,000) must be distributed from the Plan, per plan rules. Is there 10% Tax Penalty? Age 42

  • February 3, 2024
  • 1 reply
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Is this considered 'Section 457 Plan Distributions' in the Turbo Tax site, which would lower my tax bill?
Best answer by dmertz

Yes, this would be an early distribution subject to a 10% early-distribution penalty.  You can avoid the penalty by rolling the distribution over to a traditional IRA.  The plan is required by law to offer the opportunity for you to request that the distribution be moved to a traditional IRA by direct rollover.  A direct rollover avoids mandatory tax withholding.

1 reply

dmertzAnswer
Employee
February 4, 2024

Yes, this would be an early distribution subject to a 10% early-distribution penalty.  You can avoid the penalty by rolling the distribution over to a traditional IRA.  The plan is required by law to offer the opportunity for you to request that the distribution be moved to a traditional IRA by direct rollover.  A direct rollover avoids mandatory tax withholding.