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<<I am in the General Electric Savings & Security Plan (401k) and was told that I could have the GE stock dividends paid to me quarterly without the 10% penalty, and pay regular income tax.>>

I have a similar situation at AlliedSignal now Honeywell. The dividends that the stock portion of the 401k generate are sent to me once each quarter. I don't have a choice in the matter and the company claims that they don't either. I believe this is not considered a distribution because the money never gets into the 401k. Hence no penalty. The 1099 I get calls it a dividend so I list it as such and pay taxes on it.

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