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Take early withdrawal from different pocket

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in Small Business Tax

Q. I need to withdraw funds from my 401(k) to help pay my daughter’s last year in college. Is there a penalty? D.A., Quincy, Mass.

A. Yes, if you’re under age 59½. Generally, early withdrawals from a 401(k) or other qualified retirement plan are subject to a 10% penalty tax, on top of regular income tax, unless one of several tax law exceptions apply.

No matter how well-intentioned you are, there’s no exception for withdrawals to pay higher education expenses. Conversely, such an exception does exist for traditional IRAs. Take money out first from an IRA, if possible.

Tip: The 10% penalty is applied to the taxable portion of the 401(k) distribution.

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