Taxes on Distributions
Your 401(k) plan funds are generally taxed when withdrawn, or "distributed". Distributions of your funds can occur before or after retirement age for a variety of reasons.
In most situations, you need to include any distributions of your plan in your taxable income for the year that you receive the distribution. The tax treatment of your distributions will depend on how old you are when you receive the distribution.
Distributions Before Normal Retirement Age
Distributions made to you before you reach age 59 1/2, the Normal Retirement Age, are normally subject to an additional 10% penalty tax, except in cases where the distribution is made on account of your death or disability.
Distributions After Normal Retirement Age
Traditional 401(k) Accounts
Distributions of your Traditional 401(k) after age 59 1/2 will be taxed as ordinary income during the year in which you make the withdrawals.
Roth 401(k) Accounts
You will not be taxed on distributions made after age 59 1/2 of your “qualified” Roth 401(k) contributions or their earnings.
In order to be a "qualified" distribution, the distribution can't be made before the expiration of a 5‑year participation period. The 5‑year participation period is the 5‑year period beginning with the calendar year in which you first make a Roth 401(k) contribution to your Guideline 401(k) (or to another 401(k) or 403(b) plan if the amount was rolled over into Guideline) and ending on the last day of the fourth subsequent year.
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