Information on Declaring 401K Income

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READER QUESTION

My husband who is 60 withdrew money from his 401k, how do we go about claiming this on our taxes?

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Bills.com Resident Expert
Dec 12, 2011
BILL'S ANSWER

Whenever you make a withdrawal from your 401K plan (known as a "distribution"), you will receive a Form 1099-R reporting the distribution from the 401(k) pension plan by January 31 of the year following the year of distribution. Form 1099-R is an Internal Revenue Service (IRS) form with which an individual reports his or her distributions from annuities. The following are some of the items included on the form: the gross distribution paid during the given tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld, the contributions made to the investment or premiums paid, and a code that represents the type of distributions made to the holder of the plan.

Your husband would have received this form from the plan custodian, who sends the form to the owner of a plan if he or she has made distributions of $10 or more from the plan in a given year. Your will then have to attach a copy of Form 1099-R to your tax returns. Whether this will put you in a higher tax bracket or not is a question only a tax professional can will be able to answer after he has examined all of your information (such as your individual W2 forms), but you will have to declare this income on your tax returns for the year that you made the withdrawal in. I suggest that you consult with Freedom Tax Relief to find out more about the implications of this withdrawal.

I hope the information provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com/

Comments (4)


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Bills.com
April 20, 2009
Your husband can make the lump sum withdrawal as he is well over the age of 59 & 1/2. There is no such thing as an 'earnings limit', but it is common for people to spread their withdrawals over a period of few years so that the taxation does not get too heavy. For example, if your husband has $100,000 in his 401k savings, he can withdraw the entire amount. If he made $40,000 from other sources, then he would have to add this amount to his regular income. Therefore he would end up paying taxes for $140,000 (as per the tax brackets).
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Darlene K.
April 17, 2009
My husband is retired, his birthday is 12/1941. Is he considered "full retirement age"? He wants to withdraw the lump sum from his 401K and needs to know if there is an earnings limit for his retirement age?
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Bills.com
May 15, 2008
As your mother is above the age of 59 1/2, she can definitely withdraw her 401k savings. She will need to contact her plan administrator at work to follow up for the withdrawal request. Just bear in mind that whatever the amount she withdraws, it will be added on to her yearly income and she will be taxed according to the prevailing rates.
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Kim O.
May 15, 2008
My mother, age 60, wishes to withdrawal her 401k money and no longer contribute. Is that possible? She does not want to borrow, she wishes to withdrawal and stop contributing. What does she have to do and is that possible for her to do?
Thanks for your feedback!

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