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Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3153
Experience:  EA, CEBS - 35 years experience providing financial advice
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If I have substantial losses in an etrade 401k account, can ...

Resolved Question:

If I have substantial losses in an etrade 401k account, can I use those losses to offset the penalty to move the funds to a non 401k account?
Submitted: 9 years ago.
Category: Tax
Expert:  Bill replied 9 years ago.

Unfortunately you cannot use the losses in a 401(k) to offset the income or penalty from taking a distribution from the plan. However, depending on the reason for taking a distribution you may be able to avoid paying the 10% penalty for a distribution prior to age 59 1/2. For example, if the funds are directly rolled over to an IRA and then withdrawn from the IRA to pay college expenses, certain medical expenses, or for a first time home purchase up to $10,000 then the penalty will not apply.

If you have only made voluntary nondeductible employee contributions to the plan (very unlikely) then it may be possible to claim a loss as a miscellaneous deduction subject to 2% of AGI.

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