A 401(k) plan is a retirement account offered by many employers to company employees to help them save for retirement while getting special tax advantages. If you took money out of your 401(k) plan during the year, you must record the distribution on your taxes. Keep careful records to ensure that you report the proper amounts.

Paperwork

After any year in which you withdraw money from a 401(k) plan, you should receive form 1099-R in January or early February from the custodial financial institution. If you do not receive a copy of this form, contact your financial institution. If you have received funds from multiple 401(k) plans, make sure you have a form 1099-R from each company. This form shows the amount that has been distributed, the amount that is taxable and the amount that has been withheld from the payout to pay for taxes.

Early Distribution Forms

If you take an early distribution (before you turn age 59 1/2) from your 401(k) plan, you will have to fill out form 5329 to determine how much, if any, penalty you owe on your early withdrawal. If you withdrew your money from a 401(k) plan early for a qualified reason, you must still file form 5329 but you will not be charged a penalty. Qualified reasons include permanent disability, medical expenses over 7.5 percent of your adjusted gross income, money being disbursed because of a divorce proceeding, and money you are withdrawing if you left your job after age 55. Any unqualified withdrawals will be subject to a 10 percent tax as of 2009.

Tax Return

You must file your tax return using form 1040. On line 15a, you must report all of your 401(k) payouts, taxable or nontaxable. You can find this total by taking the sum of the amounts in box 1 of each of your 1099-R forms. This amount is not included in your taxable income. On line 15b, you must write the amount of all of your taxable payouts. You can determine this by taking the sum of all of the amounts in box 2a of your 1099-R forms. This amount will be included in your taxable income. Finally, if you owe a penalty on your early withdrawal, you must write that amount on line 58 of your form 1040.

Source:

H&R Block: Accessing Funds in Your 401k or IRA

IRS: Form 5329 Instructions

More Information:

Form 1099-R

Form 5329