Hardship payouts from 401(k) plans and IRAs can be hit with the 10% penalty if the recipient hasn’t reached age 59½, as this Tax Court case demonstrates. A 49-year-old taxpayer who was laid off from his job took distributions from his 401(k) and his IRA to pay the mortgage on his house and to otherwise support his family. Unfortunately for him, there’s no general hardship exception to the 10% excise tax on early distributions, so he owes the fine (Matthews, TC Summ. Op. 2014-84). IRS has a helpful chart listing withdrawals that escape the penalty, such as a series of substantially equal payments that run for the longer of five years or until age 59½ and distributions made to cover very large medical expenses.
Posted on: Sat, 13 Sep 2014 00:26:56 +0000