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Anne, Master Tax Preparer
Category: Finance
Satisfied Customers: 2439
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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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: 1 year ago.
Category: Finance
Expert:  Anne replied 1 year ago.


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:

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.

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