Question:   Does the 10% additional tax on early distributions apply if I am over age 55 and default on a loan through my 401(k) plan when I have a separation from service with my employer?

Answer:   If you default on a loan from your 401(k) plan:

• You are considered to have received a distribution from your 401(k) plan.
• You may have to pay the 10% additional tax on early distributions unless you are eligible for one of the exceptions to this additional tax.

For example, the 10% additional tax on early distributions does not apply if all the following apply to you:

• You received the distribution after you separate from service with your employer; and
• Your separation from service occurs during or after the calendar year in which you reached age 55; and

There are a number of exceptions to the 10% additional tax on early distributions. You may wish to refer to (1) Instructions for Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, (2) Publication 575, Pension and Annuity Income, and (3) Publication 560, Retirement Plans for Small Business, for additional information.