A 401(k) plan is a type of tax-qualified plan that permits an employee to elect to have the employer contribute part of the employee's cash wages to a retirement plan on a pretax basis. These deferred wages are not subject to income tax withholding at the time of deferral. The deferred wages are not reflected on Form 1040 since they were not included in taxable wages of box 1, Form W-2. However, they are included as wages subject to social security, Medicare, and federal unemployment taxes. The amount an employee can elect to defer is limited. Refer to Elective Deferrals in Publication 525, Taxable and Nontaxable Income, to determine the annual limit. Employees age 50 or over may be eligible to make additional catch-up contributions.

References:

• Publication 525 Taxable and Nontaxable Income
• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business
• Tax Topic 424, 401(k) plans

The answer to this question depends on your type of retirement plan. Generally, if your employer's plan has a separate account for each employee, it is a defined contribution plan. If any amount was contributed or allocated by you or your employer to your account, you are considered covered. It does not matter if you have worked long enough to be vested.

In the other type of plan, a defined benefit plan, the employer must make enough contributions (together with earnings) to provide the retirement benefit promised in the retirement plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer's plan, you are considered covered. It does not matter if you are vested.

The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The "Pension Plan" box should have a mark in it if you were covered.

References:

• Publication 575, Pensions and Annuity Income
• Tax Topic 410 Pensions and Annuities

If you cannot use the Simplified Method, you can ask the IRS to figure the tax-free part of your pension under the General Rule. The IRS charges a user fee for this service. Publication 939, General Rule for Pensions and Annuities, contains a detailed explanation of the information required to be furnished with your request. Also, refer to Tax Topic 411, Pensions - The General Rule and the Simplified Method, for additional information. If your annuity starting date is after November 18, 1996, you generally cannot use the General Rule for annuity payments from a qualified plan.

References:

• Publication 939, General Rule for Pensions and Annuities
• Tax Topic 411, Pensions - The General Rule and the Simplified Method

No, generally you do not pay social security and Medicare taxes on retirement income from a tax qualified plan.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Form 1099-R (PDF)Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA, Insurance Contracts.

If you cannot get your employer to pay you your pension money, you should contact the Employee Benefits Security Administration (EBSA) of the Department of Labor. To find out which office you are serviced by, contact (866) 275-7922. Alternatively, you may write them at:

References:

• Employee Benefits Security Administration

If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received. Refer to Tax Topic 410, Pensions and Annuities, for detailed information, or Publication 575, Pension and Annuity Income. For social security and equivalent railroad retirement benefits, refer to Tax Topic 423 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

References:

• Publication 575, Pension and Annuity Income
• Publication 915, Social Security and Equivalent Railroad Retirement Benefits
• Tax Topic 410, Pensions and Annuities
• Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits

The maximum amount an employee can contribute to a 401(k) plan is determined annually. You may be allowed catch up contributions in addition to annual limit, if you are age 50 or older. Refer to "Elective Deferrals" in Publication 525,Taxable and Nontaxable Income. The maximum amount applies to an employee's aggregate pre-tax contributions to a 401(k) plan and 403(b) plan. There are several different limits that apply to a 401(k) plan in addition to the overall contribution limit. These limits, your salary, and the type of 401(k) plan to which you are contributing may limit your 401(k) contributions to a lesser amount.

The rules for retirement plans are complex. Your plan administrator should have written information about your particular plan that explains these limitations as well as other regulations that apply.

For further information, refer to Tax Topic 424, 401(k) plans.

References:

• Publication 525, Taxable and Nontaxable Income
• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business
• Tax Topic 424, 401(k) plans

Elective deferrals into a section 401(k) plan are limited to $15,000 for 2006, except that employees age 50 or over may be eligible to make an additional contribution of up to $5,000.00 in 2006. Note that certain elective deferrals made by a participant (including elective deferrals to simplified employee pensions, IRC 403(b) plans and IRC 501 (c)(18) plans) are included in applying the limit. See Tax Topic 424, 401(k) plans, for more information.

References:

• Tax Topic 424, 401(k) plans

A 403(b) plan is a tax-sheltered annuity arrangement for employees of public schools and certain tax-exempt organizations. Section 403(b) has a special nondiscrimination rule which imposes a universal availability requirement generally providing that all employees of the eligible employer must be permitted to elect to have at least $200.00 a year elective deferrals contributed on their behalf if any employee of the employer may elect to make a section 403(b) elective deferral. For more information, see Internal Revenue Code sections 403(b)(1)(D), and 403(b)(12)(A)(ii).

References:

• Publication 571, Tax Sheltered Annuity Plans 403(b) Plans
• IRS Code Sec. 402(g) (1)

Special tax computations are allowed for qualifying recipients of certain lump-sum distributions from retirement plans. Refer to Tax Topic 412 which discusses Lump-Sum Distributions, or Publication 575, Pension and Annuity Income.

References:

• Publication 575, Pension and Annuity Income
• Tax Topic 412, Lump-sum distributions

You may be able to elect optional methods of figuring the tax on lump-sum distributions you received from a qualified retirement plan.

A lump-sum distribution is the distribution or payment, within a single tax year, of an employee's entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans. The distribution must have been made under specific conditions. For details, refer to Tax Topic 412 which discusses Lump-Sum Distributions or Publication 575, Pension and Annuity Income.

References:

• Publication 575, Pension and Annuity Income
• Tax Topic 412, Lump-Sum distributions

You will need to file a Form 1040 and show the amount of withdrawal from your pension. Since you took the withdrawal before reaching age 59 1/2, you may need to pay a 10 percent additional tax on early distributions from qualified retirement plans. The early distribution tax does not apply to any distribution that meets the criteria for one of several exceptions (see Publication 575, "Pension and Annuity Income"). This tax applies to the distribution that you must include in gross income. It does not apply to any part of a distribution that is tax free, such as amounts that represent a return of your cost or that were rolled over to another retirement plan. You may need to complete Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's) and other tax-favored accounts and attach it to the tax return.

References:

• Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's, Annuities) and other tax-favored accounts
• Form 5329 Instructions, Additional Taxes on Qualified Plans (including IRA's) and other tax-favored accounts
• Tax Topic 558, Tax on early distributions from retirement plans
• Publication 575, Pension and Annuity Income

You may need to make an estimated tax payment by the due date for the quarter in which you received the distribution. When calculating your tax liability to determine whether you need to make an estimated tax payment, your total tax for the year should include the amount of the 10 percent additional tax on early distributions from qualified retirement plans unless an exception applies.

You would calculate the tax on Form 1040-ES (PDF), Estimated Tax for Individuals, and any 10 percent additional tax on early distributions from qualified retirement plans on Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's) and other tax-favored accounts.

References:

• Form 1040-ES (PDF), Estimated Tax for Individuals
• Form 5329 (PDF), Additional Taxes Attributable on Qualified Plans (Including IRA's) and other tax-favored accounts
• Publication 505, Tax Withholding and Estimated Tax
• Tax Topic 451, Individual retirement arrangements (IRAs)
• Tax Topic 558, Tax on early distributions from retirement plans

Yes, you need to include in income the total amount of your 401(k) distribution reported on Form 1099-R (PDF),Distributions From Pensions, Annuities, Retirement on Profit-Sharing Plans, IRAs Insurance Contracts, etc. In addition, if the distribution occurs before you are age 59 1/2, you may need to pay a 10 percent additional tax on early distributions from qualified retirement plans unless you meet one of the exceptions in Publication 575, Pension and Annuity Income. You will include the federal income tax withheld on the appropriate line of your federal tax return along with any other federal income tax.

References:

• Publication 575, Pension and Annuity Income
• Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's), and Other Tax-Favored Accounts
• Form 5329 Instructions, Additional Taxes on Qualified Plans (including IRA's), and Other Tax-Favored Accounts
• Tax Topic 558, Tax on Early Distributions from Retirement Plans
• Tax Topic 412, Lump-Sum Distributions

If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan as well as other plan rules.

References:

• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business
• Tax Topic 424, 401(k) Plans
• Tax Topic 558, Tax on Early Distributions From Retirement Plans

If the amount rolled over was the net amount, that is, the amount of the distribution less the tax withheld, then the 20% withholding amount not rolled over is included in gross taxable income and may be subject to a 10 percent additional tax on early distributions from qualified retirement plans. Use Form 5329 (PDF), Additional Taxes on Other Qualified Plans (including IRA's), and Other Tax-Favored Accounts, to report the penalty.

If the amount rolled over was the gross amount, that is, you added an amount equal to the withholding to the amount that was rolled over, you would not add any of that amount to gross taxable income this year or owe a 10 percent additional tax on early distributions from qualified retirement plans.

References:

• Publication 575, Pension and Annuity Income
• Publication 590, Individual Retirement Arrangements (IRAs)
• Form 5329 (PDF), Additional Taxes on Other Qualified Plan (including IRA's), and Other Tax-Favored Accounts
• Form 5329 Instructions, Additional Taxes on Other Qualified Plan (including IRA's), and Other Tax-Favored Accounts
• Tax Topic 558, Tax on Early Distributions From Retirement Plans
• Tax Topic 412, Lump-Sum Distributions

In most cases, if you withdraw funds from your 401(k) plan before you are 59 1/2, you must pay the 10 percent additional tax on early distributions from qualified retirement plans on any amounts that are not rolled into an IRA. However, there are some exceptions listed in Publication 560, Retirement Plans for Small Business, and Publication 575, Pension and Annuity Income.

References:

• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business
• Tax Topic 558, Tax on Early Distributions From Retirement Plans
• Tax Topic 412, Lump-Sum Distributions

No, the 10 percent additional tax on early distributions from qualified retirement plans you pay for a premature withdrawal does not qualify as a penalty for withdrawal of a savings account.

References:

• Form 1040, U.S. Individual Income Tax Return.
• Publication 550, Investment Income and Expenses
• Publication 529, Miscellaneous Deductions
• Publication 575, Pension and Annuity Income
• Tax Topic 558, Tax on early distributions from retirement plans

If you take a distribution from certain pension plans before you have reached 59 1/2 years of age, you may be subject to an additional 10 percent tax on early distribution unless you meet the exceptions in Publication 575, Pension and Annuity Income. This 10 % is in addition to the income tax you pay on the distribution. The total income tax you owe on your individual income tax return is reduced by any withholding or estimated tax payments, including the 20% withholding identified on your Form 1099-R (PDF).

References:

• Form 1099-R (PDF), Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA, Insurance Contracts.
• Publication 575, Pension and Annuity Income
• Tax Topic 558, Tax on early distributions from retirement plans
• Tax Topic 412, Lump-sum distributions

You will need to file a Form 1040 and show the amount of distribution from your 401(k) plan. If you took a distribution prior to reaching age 59 1/2, you will need to pay a 10 percent additional tax on early distributions from qualified retirement plans unless you qualify for one of the exceptions discussed in Publication 575, Pension and Annuity Income. Depending upon how the distribution on your Form 1099-R (PDF) is coded (refer to box 7 of the form), you may also need to complete Form 5329 (PDF), Additional Taxes on Other Qualified Plan (including IRA's), and other tax-favored accounts. Refer to the Form 5329 Instructions, Additional Taxes on Other Qualified Plan (including IRA's), and other tax-favored accounts, to determine if you need to file Form 5329 (PDF).

References:

• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business
• Form 5329 (PDF), Additional Taxes on Other Qualified Plan (including IRA's), and other tax-favored accounts
• Form 5329 Instructions, Additional Taxes on Other Qualified Plan (including IRA's), and other tax-favored accounts
• Tax Topic 558, Tax on early distributions from retirement plans
• Tax Topic 412, Lump-sum distributions

You should receive a Form 1099-R reporting the outstanding loan as a distribution from the 401(k) plan. This income is reported as ordinary income on Form 1040. If you are under the age of 59 1/2, you are also subject to a 10 percent additional tax on early distributions from qualified retirement plans unless you qualify for an exception listed in Publication 575, Pension and Annuity Income. If you are subject to the 10 percent additional tax on early distributions from qualified retirement plans you may also need to file Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's), and other tax-favored accounts. Refer to Form 5329 Instructions for more information.

References:

• Form 1040, U.S. Individual Income Tax Return
• Publication 575, Pension and Annuity Income
• Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's), and other tax-favored accounts
• Form 5329 Instructions, Additional Taxes on Qualified Plans (including IRA's), and other tax-favored accounts
• Tax Topic 558, Tax on early distributions from retirement plans
• Tax Topic 412, Lump-sum distributions

If you default on a loan from your 401(k) plan, you are considered to have received a distribution from your 401(k) plan. Whether or not you will have to pay the 10 percent additional tax on early distributions from 401(k) plan depends on a number of factors, including your age.

In order to avoid the 10 percent additional tax on early distributions from qualified retirement plans, the following all must be true:

• you received the distribution after you left the company; and
• you left the company during or after the calendar year in which you reached age 55; and
• your departure from the company qualifies as a separation from service.

References:

• Publication 560, Retirement Plans for Small Business
• Publication 575, Pension and Annuity Income
• Tax Topic 558, Tax on Early Distributions From Retirement Plans

You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution). The IRS may waive the 60 day requirement where failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. To obtain the waiver in most cases, a request for a letter ruling must be made which include the applicable user fee. Refer to Internal Revenue Bulletin 2006-01 to get the Internal Revenue Procedure for requesting a letter ruling. A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans. For information on the Direct Rollover Option, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRA's).

References:

• Publication 17, Your Federal Income Tax
• Publication 575, Pensions and Annuity
• Tax Topic 413, Rollovers from Retirement Plans

You should obtain Form 1040-ES (PDF), Estimated Tax for Individuals, to help you figure your estimated tax liability. Since this situation involves a lump-sum distribution, you may qualify for the ten-year tax option. Lump-sum distributions must meet specific requirements to qualify for optional tax treatment. Thus, you may also need Form 4972 (PDF) , Tax on Lump-Sum Distributions, to make an accurate estimate of your income tax liability.

References:

• Publication 505, Tax Withholding and Estimated Tax
• Publication 575, Pension and Annuity Income
• Form 1040-ES (PDF), Estimated Tax for Individuals
• Form 4972 (PDF), Tax on Lump-Sum Distributions
• Tax Topic 412, Lump-Sum Distributions

You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution.) The IRS may waive the 60 day requirement in certain situations, such as in the event of a casualty, disaster, or other event beyond your reasonable control. To obtain a waiver, a request for a ruling must be made including the applicable user fee. Refer to Tax Regs in English to get the Internal Revenue Procedure for requesting a ruling. A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans. For information on the Direct Rollover Option, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).

References:

• Publication 17, Your Federal Income Tax
• Tax Topic 413, Rollovers from Retirement Plans
• Publication 590, Individual Retirement Arrangements (IRAs)

Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into a IRA and you meet all of the qualifications for an IRA distribution for a first-time homebuyer. Your plan administrator is required to notify you before making a distribution from your 401(k) plan whether that distribution is eligible to be rolled over into an IRA. To see if you qualify for a distribution to be used as a first-time homebuyer, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).

References:

• Publication 560, Retirement Plans for Small Business (SEP, Simple, and Qualified Plans)
• Publication 575, Pension and Annuity Income
• Publication 590, Individual Retirement Arrangements (IRAs)
• Tax Topic 424, 401(k) plans
• Tax Topic 558, Tax on early distributions from retirement plans
• Tax Topic 412, Lump-sum distributions

No. A 401(k) plan is not an IRA. However, the amount you contributed is not included as income in box 1 of your W-2 form so you don't pay tax on it in the year you make the contribution. For more information, refer to Tax Topic 424, 401(k) Plans, Publication 575, Pension and Annuity Income, or Publication 560, Retirement Plans for Small Business.

References:

• Publication 575, Pension and Annuity Income
• Publication 560, Retirement Plans for Small Business (SEP, Simple, and Qualified Plans)
• Tax Topic 424, 401(k) Plans

You are treated as covered by an employer sponsored retirement plan if you are covered for any part of the taxable year. The amount you can deduct will be determined by your Modified Adjusted Gross Income (MAGI) and filing status. For specific information refer to Publication 590, Individual Retirement Arrangements (IRAs).

References:

• Publication 590, Individual Retirement Arrangements (IRAs)
• Tax Topic 451, Individual Retirement Arrangements (IRAs)