Calulating Penalty From Early Withdrawal From Rollover IRA
A person has a 401k valued at say $22,000 with an employer. That person leaves the employer and rolls the 401k into a rollover IRA. The person withdraws $8,000 from the IRA in 2019.
I assume the IRA is 100% taxable.
How does one determine the 10% penalty for early withdrawal? Would you put $8000 on line 4a of form 1040 with the taxable amount of $8800 on line 4b or would the $800 go as other income on line 8 of schedule 1? The info that I’ve found browsing the net seems like a complicated mess.
Permalink Submitted by tomd37 on Sun, 2020-02-16 21:53
Assuming the $8,000 is an early distribution and not qualified for an exemption, I think the $8,000 is reported on Part 1 of Form 5329. I believe the 10% tax penalty of $800 would then carry over to Form 1040 Schedule 2 line 6 as an additional tax. Let’s see what others have to say.
Permalink Submitted by THOMAS WNUK on Sun, 2020-02-16 22:34
The tax on $8,000 from the tables is $803 so a 10% penalty on that would be $80 I think.
Permalink Submitted by Alan - IRA critic on Sun, 2020-02-16 23:04
The income tax on the distribution does not matter. The early withdrawal penalty is 10% of the taxable amount of the distribution, or $80. You came up with the same figure by coincidence because the amount of the distribution, if that was the only taxable income, happens to be in the 10% bracket.