J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

7.29 Withdrawals From Employer’s Qualified Retirement Plan Before Annuity Starting Date

You generally may not make tax-free withdrawals from your employer’s qualified retirement plan, qualified employee annuity plan, or 403(b) plan before the annuity starting date, even if your withdrawals are less than your investment. On a withdrawal before the annuity starting date, you must pay tax on a portion of the withdrawal unless the exceptions below apply. The portion of the withdrawal allocable to your investment is recovered tax free; the portion allocable to employer contributions and income earned on the contract is taxed. To compute the tax-free recovery, multiply the withdrawal by this fraction:

Your investment and vested benefit are determined as of the date of distribution.

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Caution

Favorable Recovery Rules

Both of the favorable cost recovery rules discussed under “Exceptions” in this section (7.29) are complicated and you should consult your plan administrator to determine if the exceptions apply and how to make the required calculations.

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Exceptions.

More favorable investment recovery rules are allowed in the following cases:

1. Employer plans in effect on May 5, 1986. If on May 5, 1986, your employer’s plan allowed distributions ...