Early Profit Sharing Pan withdawl
i am a 45yo that recently terminated 9 years employment from a small company that made contributions on my behalf in there employee profit sharing plan. They gave me my vested share of $28,000 and a 1099R. I want to use this money to buy a home. Is the plan administrator required to give me anything else? Is he required to deduct the early withdraw penalty and income tax? Or do i pay both myself? Thank you in advance for your reply
Terry Says
This is something you should ask your plan administrator. First, ask if they WITHHELD income taxes (and any state taxes that might apply). Second, ask if there was an early withdrawal penalty. (I'm guessing there won't be as it was a terminated profit-sharing plan.) Either way, these are two important questions to ask before you spend the money! Assuming no taxes were withheld, then the amount on the 1099R must be reported on top of your other ordinary income, and you will pay taxes on it at your marginal rate. And a distribution this size might even push you into a higher tax bracket. So once you get the answers to the questions for the plan administrator, I would suggest consulting an accountant, a CPA, to advise you on whether you should make advance quarterly estimated tax payments on this windfall.
