My husband was terminated and cashed out his retirement plan instead of rolling over

Forum|Forum|1 year ago
February 11, 2025
2 replies
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My husband was terminated from his employment and we chose to cash out his retirement instead of rolling it over. We did have the funds taxed upon cashing it out. When I am inputting the information on our taxes, would we still have to pay a penalty for this? Or does this qualify as a reason to not owe additional tax?

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mglauner

If you had Tax withheld (say, 10%) on your husband's 1099-R Distribution, you could still owe additional tax, plus a Penalty for Early Withdrawal.

For example, if you're in a 10% tax bracket normally, and you received a distribution of 50K with 10% tax withheld, that additional income may throw you into a 15% tax bracket, so the tax withholding on your 1099-R may not be enough.

As far as the penalty goes, if he was under 59-1/2 when he withdrew his retirement funds, here are is the Penalty Exceptions for IRA Early Withdrawal and Penalty Exception for Non-IRA's, depending on what type of retirement plan he had.

After you enter your 1099-R, TurboTax will ask questions to determine if you qualify for a Penalty Exception, so pay close attention to those follow-up questions.

JAVA417Author

Ok thank yo. He is 45 and the amount that he cashed out was only $4433.28 and the federal tax withheld was $886.66. I don't think this increased our tax bracket placement. We did use it for family emergency expenses but that was because he was unemployed for a bit and we needed the income, so I hope that counts.