As a short-term solution for money troubles, many turn to their 401(k) plans for withdrawals. Some taxes are taken out from the amount of money you withdraw. Then you must also report this as income on your end-of-the-year tax return. In many cases, you are going to pay some additional taxes on this money, but this depends on your tax bracket. Learn how to file taxes with a 401(k) withdrawal so that you benefit the most on your taxes.
Print the 1040 federal tax form for the year you are filing. Keep in mind that if you took an early withdrawal on your 401k plan in 2012, for example, you must report this as income on your 2012 tax return that is due in April of 2013.
Fill out your Form 1040 until you get to line 16a, where you will write the amount of your early withdrawal from the box on the 1099-R that says Total Distribution. On line 16b, you will enter the taxable amount from the box on the 1099-R that says Taxable Distribution. For instance, if you took out $2,500, that amount would be entered as Total Distribution on line 16a and the amount after tax listed as Taxable Distribution is entered on line 16b. The taxable amount is what may be subject to a 10 percent penalty tax.
Fill out Form 5329 if you are under the age of 59 ½ years old and received a 401k early withdrawal. After filling out this form, you will know the amount of your tax for Form 1040 line 58 if you have any special circumstances pertaining to the early withdrawal. There are eight sections to this form. If you only qualify for section 1, move to the next step.
Fill out section 1 of Form 5329 if you do not qualify for any other sections and enter that amount from line 4 on line 58 of Form 1040. If you qualify for any other sections on Form 5329, follow the directions for entering those amounts.
Visit the IRS website for printable forms 1040 and 5329.
If you are unsure of what you are doing, you should always talk to a tax professional.
- dollar image by andrey polichenko from Fotolia.com