401k Distrubtions at 59 1/2

[HelpinMN]

What is the name of your state (only U.S. law)? MN

My father in law an I were talking about his 401k as he nears retirement and he asked me a question that I was not sure the answer of.

If he turns 59 on March 1'st of 2011 which means he turns 59 1/2 on September 1st of 2011 does that mean that he can take out of his 401k on January 1st of 2011 because it will all count as income for the tax year of 2011 (and his 1099 will simply show income for that year) because it is the year that he turns 59 1/2?

 

[ShyCat]

If he turns 59 on March 1'st of 2011 which means he turns 59 1/2 on September 1st of 2011 does that mean that he can take out of his 401k on January 1st of 2011 because it will all count as income for the tax year of 2011 (and his 1099 will simply show income for that year) because it is the year that he turns 59 1/2?

First of all, distributions from a 401(k) are always considered ordinary income. He will receive a 1099R and need to report that income on his 1040. The 59 1/2 age rule is relevent in determining if an early withdrawal penalty of 10% is also assessed.

If he left employment with that employer in the year he turned 55 or older, he can take distributions from that particular 401(k) account without the early withdrawal penalty. [Note that this exception is not available if he rolled his 401(k) over into an IRA.]

If he left employment with that employer before the calendar year he turned 55, he is subject to the 10% early withdrawal penalty until he attains age 59 1/2. Any distributions made before age 59 1/2 will be coded on a 1099R as subject to the 10% early withdrawal penalty. Any distributions made after age 59 1/2 will be coded on a separate 1099R as not subject to the penalty.

 

[davew128]

Any distributions made after age 59 1/2 will be coded on a separate 1099R as not subject to the penalty.

I wouldn't hang my hat on that.