by AARP.org, August 25, 2008
Q: I was recently laid off and withdrew my 401(k) balance to live on. Do I have to pay a penalty for early withdrawal? I am 58 years old.
A: As you separated from employment and are at least age 55, you are exempt from the 10 percent early-withdrawal penalty. Your former employer should record a Code 2 (Known Exception Exists) in Box 7 of the 1099-R that will be sent to you. If there is some other code in that box, then you will have to complete IRS Form 5329 and write Code 01 on Line 2 of that form.
These questions are actual inquiries submitted by taxpayers to our AARP Tax-Aide Program. The AARP Tax-Aide Program is a volunteer-run, free tax-preparation and assistance program offered to low- and middle-income taxpayers with special attention to those age 60 and older. Our volunteers are trained and IRS-certified to understand individual federal-tax issues. Our volunteers provide tax assistance as a public service and cannot guarantee the accuracy of the information provided.
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