Plan Distributions

[Guest KevinP]

I have read that the 10% penalty is waived on distributions from an IRA if the distribution is to purchase a primary residence, on amounts up to $10,000. Is this true for 401(k) plans as well? If so where can I find supporting documentation in the regulations?

[Guest JEP]

Other than a plan loan, if the participant is less than 59 1/2, the 10% penalty will generally apply for any type of distribution other than a rollover.

[QDROphile]

There are various exceptions to the tax, but purchase of a residence is not among them.

[Guest MEGary]

My husband took a plan loan from his 401(k) plan when we purchased our first house. However, 6 months later, my husband terminated employment with the company and our loan became a deemed distribution. I was talking with some accountants and they were discussing this same rule that you all are referring to and he thought that we might be able to waive the 10% penalty. Does this make sense? Is this possible?

Thanks for the help!

[RCK]

The only ways out of the penalty in your situation would be to repay the loan before taking the distribution, or to roll the entire distribution, including restoring the loan amount. In other words, you can repay the loan to the plan you are leaving, or the plan that you are entering.

RCK

[MWeddell]

KevinP, read Internal Revenue Code Section 72(t) for the rules about the 10% early distribution excise tax

[Guest KevinP]

Thank you for all of your comments. I will read IRC 72(t).

[Guest RJM]

Also see Page 2 of the instructions for IRS Form 5329.