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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15588
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have a 401K and I want to use some of that money to help

Resolved Question:

I have a 401K and I want to use some of that money to help my mother with home improvements for her house. Are there any general guidelines about this one way or the other. The house is not in my name but it is the family home and I want to do this for her.
Submitted: 1 year ago.
Category: Finance
Expert:  Megan C replied 1 year ago.

MyVirtualCPA :

Thank you for your question, and thanks for using JustAnswer.com

MyVirtualCPA :

As you are well aware, when you take money out of your 401(k) plan you will have to pay tax on that money, plus a 10% penalty if you withdraw before age 59.5

MyVirtualCPA :

You can give your mom the money to fix up her house, or fix her house up for her. For this gift, there is no reporting requirement if you gift less than a value of $14,000

MyVirtualCPA :

If you gift more than $14,000 you will need to file a gift tax return, although no gift tax will be due unless you have already used up your $5.2 million lifetime credit

MyVirtualCPA :

Typically, when you give a gift the person giving the gift has to pay a tax on it. $14,000 per year, per person, is excluded from this amount. Also, the IRS allows you to gift up to $5.2 million during your life without paying the gift tax.

MyVirtualCPA :

So, no tax will be due on this gift, but there may be a reporting requirement depending on how much you gift

MyVirtualCPA :

Is there anything else that I can assist you with today? If not, please rate my response as "excellent' so that I may receive credit for assisting you today

Customer:

Just to clarify for me. I can gift as much as I want as long as it does not go over $5.2 million and as long as it is a gift I will not have to pay tax on it, only the 10% penalty for early withdrawal?

Customer:

The repairs will be around $20,000.00 so I will not have to pay tax on the $6000?

Expert:  Megan C replied 1 year ago.
Tino,

I had to switch to this other format, as I could not re-join our live chat. Sorry for any inconvenience.

You will still owe income tax on the funds you withdraw from your 401(k) in addition to the penalty. The gift tax would be on top of income tax if it were assessed.

So, you will take funds from your 401(k) pay taxes on those funds, pay a 10% penalty, and then give your mom as much as you like.

You will have to file a gift tax return because your gift to your mom is over $14,000 - but no tax will be due other than your income tax and penalty.

Hope this helps. Please let me know if I can be of any further assistance. Thanks again for using JustAnswer.com and please take a moment to rate my response as "excellent" So that I may receive credit for assisting you today.
Customer: replied 1 year ago.

One more question. I have already withdrawn a certain amount of money for personal uses and was told I could not withdraw any more money in this manner. Is this true and do I have to file separate paperwork to get additional funds for the house repairs?

Expert:  Megan C replied 1 year ago.
Tino,

Whether or not you can take withdrawals is up to the plan. You would have to speak with your employer about whether or not you can take the withdrawal or not. If this was allowed, you would have to fill out separate paperwork to get these funds.

Some plans only allow you to withdraw in the event of a hardship. So, if you don't have a hardship, it is possible that you won't be allowed to get money from the account.

Please let me know if you need anything additional. If not, please rate my response as "excellent" so that I may receive credit for assisting today.
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15588
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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