Whenever a taxable distribution is paid directly to you or your beneficiary, 20% of the distribution will automatically be withheld to pay federal income taxes. The entire distribution is considered taxable income in the year it is received.
To defer payment of the 20% federal withholding tax, you may “rollover” your distribution to an eligible retirement plan within 60 days of receipt of your distribution. However, this 60-day period may be extended in cases of casualty, disaster or other events beyond your reasonable control.
In addition to withholding 20% for federal income taxes, you may be responsible for an additional 10% tax penalty if payment is received before age 59½; this is in addition to your regular income taxes (and any applicable state income taxes). Under certain circumstances the additional 10% tax may not apply (including for distributions made to surviving spouses). You will receive more detailed information when you apply for distribution of your account.