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i want to take $20,000.00 out of my 401k plan,My question ...

Customer Question
i want to take $20,000.00...
i want to take $20,000.00 out of my 401k plan,My question is what or how much would the taxes and penalties be?
Submitted: 10 years ago.Category: Tax
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4/21/2007
Tax Professional: Lev, Tax Advisor replied 10 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
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All distribution will be your taxable income. It will be added to your other income and taxes will be calculated based on your total taxable income and filing status.

Early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. To discourage the use of pension funds for purposes other than normal retirement, the law imposes an additional 10% tax on certain early distributions of these funds.

There are certain exceptions to this penalty. The following five exceptions apply to distributions from any qualified retirement plan:

  1. Distributions made to your beneficiary or estate on or after your death.
  2. Distributions made because you are totally and permanently disabled.
  3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
  4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income. You do not have to itemize to meet this exception.
  5. Distributions made due to an IRS levy of the plan.

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

  1. Distributions made to you after you separated from service with your employer, if the separation occurred in or after the year you reached age 55,
  2. Distributions made to an alternate payee under a qualified domestic relations order, and
  3. Distributions of dividends from employee stock ownership plans.

The following exceptions apply only to distributions from IRAs:

  1. Distributions equal to or less than your qualified higher education expenses,
  2. Distributions made to pay for a first-time home purchase, and
  3. Distributions made to pay health insurance premiums if you are unemployed.

Unfortunately the distribution from 401k used purchase a home is not valid exemption from early distribution penalty. You may rolling that amount over into the IRA and than take a distribution from your IRA account to be eligible.

Please review if any related top your situation. Please let me know if any clarification needed.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
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Customer reply replied 10 years ago
The reason I am taking this money out is for a down payment on a house! Is there any additional infomation i can use in making my decision?
Tax Professional: Lev, Tax Advisor replied 10 years ago

Unfortunately the distribution from 401k used purchase a home is not valid exemption from early distribution penalty. You may roll that amount over into the IRA and than take a distribution from your IRA account to be eligible.

Up to $10,000 may be excluded from penalty. The amount above is not excludable.

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