How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Anne Your Own Question
Anne
Anne, Master Tax Preparer
Category: Finance
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
5242771
Type Your Finance Question Here...
Anne is online now
A new question is answered every 9 seconds

I bought a gut rehab to house my disabled adult daughter. It

Customer Question

I bought a gut rehab to house my disabled adult daughter. It is about 85% complete. My mother has not had a good surgical outcome and cannot return to our rental, so I am using cash stripped from my under-performing 401(k) to buy a condo in the same complex that has a ground floor bedroom at the end of a concrete path.
What us the best way to avoid paying taxes on those funds? I am in my early 60's--also disabled. My mom and my daughter rely on me to take care of them.
We need affordable accessible shelter, but we don't need to own it. Happy to settle for life estates and donate it. Happy to put it into a trust, a self-managed real estate IRA, or considercsome other ethical and legal solution.
Submitted: 8 months ago.
Category: Finance
Expert:  Anne replied 8 months ago.

Hi

I'm Anne. I've been preparing taxes for 27 years and I'll be happy to help you.

Unfortunately, you must pay income tax on the distributions you took from your 401K monies, since they were put into the 401K PRE-TAX.

Since you are over the age of 59 1/2, you will NOT have to pay any penalties on the money that you took from the fund.

There is no avoiding the income tax on distributions from a 401K. Please see below:

http://www.bankrate.com/finance/taxes/how-are-401k-withdrawals-taxed.aspx

http://money.cnn.com/retirement/guide/401k_basics.moneymag/index7.htm

However, you may be able to recoup at least part of your investment in the properties should you choose to charge you Mother and daughter rent at Fair Market Value.

I know this was not the answer you were hoping for. Please know that if there were any legal way to NOT pay tax on a distribution from a 401K plan, it would be my pleasure to tell you so.

If you have further questions, please post them here & I'll be notified.

If this answer helped you, even though it was not the answer you were looking/hoping for, please take the moment to rate positive by clicking on the stars.

It is ONLY through positive ratings that we are compensated for our time and knowledge.

Thank you for choosing justanswer.

Related Finance Questions