Some participants question whether they have to include money that is withdrawn early from their pension account as income in the year that it is withdrawn. The answer is simply yes. You must include as a part of your income the total amount of your distribution from the Ministers’ Retirement Plan. The Benefits Board has reported to you the exact amount of the distribution on Form 1099-R. You should receive the Form 1099-R in late January following the year of withdrawal.
If you make a lump sum withdrawal prior to age 70½, the Benefits Board is required to withhold 20% as prepayment of taxes. You should include the federal income taxes withheld on the appropriate line of your federal tax return along with any other federal income taxes you paid.
In addition, if you took the distribution before age 59½, you may be required to pay a 10 percent penalty tax on early distributions from qualified retirement plans unless you meet one of the exceptions in IRS Publication 575, Pension and Annuity Income. While the 20% tax discussed above counts as prepayment of taxes owed, the 10% penalty tax is just that – a penalty, and does not apply against your tax liability. Due to the almost universal applicability of the 10% “penalty” tax, such should be figured into the realized amount when contemplating an early withdrawal.
** Please refer to the Tax Information Manual on our website for more information concerning these topics.