Early Withdrawal on 401k - 10% Penalty

Tidybuoy · 02-10-2019, 04:26 PM

I am aware of the 10% penalty for early withdrawal but I had an emergency situation this year and withdrew $12,000 from my 401k - I'm 57.

In order to do an early withdrawal (at least on my plan), you have to demonstrate a hardship. I was able to do this because my dad has cancer and he has been put on a very expensive experimental medicine that is $121 per pill and has to take 4 per day. This is not covered by insurance (or at least there is a cap on what is covered). My siblings and I are chipping in to pay for this medicine which adds up to $15k per month. Fortunately, my sister who is an oncologist , got my dad hooked up with a charity that helps pay for some of this medication. Big Pharma should be ashamed but that is another thread!

So, I was able to prove the hardship and take out from the 401k. I also had $3k held for taxes. Now that I am doing my taxes, I don't seem to see anywhere (on TurboTax) where I do anything about the hardship. There is a box for "special" and if I check that, my taxes reduce by approximately the 10% but there is absolutely no definition of what "special" means and nothing listed on my 1099.

Anyone with knowledge on this subject?

Also, I do not claim my parents on my taxes in case that means anything.

Thanks

Tidybuoy · 02-10-2019, 04:27 PM

Sorry, wrong forum. I reposted on regular off-topic.

Sooner or later · 02-10-2019, 04:40 PM

And I will give you the same amswer

Taxable event.

If you were 59 1/2 you could go for substantially equal withdrawals if you took a similar amount moving forward and avoid penalties.

Sooner or later · 02-10-2019, 04:41 PM

Some 401k will allow loans that don't create penalties or taxes.

Chocaholic · 02-10-2019, 05:06 PM

Pay a CPA this year. Cheap insurance.

Sooner or later · 02-10-2019, 05:13 PM

Call the turbo tax expert. It is free isn't it?

You are going to pay the taxes since the money you withdrew has never been taxed. I don't know if you can get out of the penalty. That might be possible

mepstein · 02-10-2019, 06:43 PM

Quote:

Originally Posted by Sooner or later

Some 401k will allow loans that don't create penalties or taxes.

I do loans all the time from my 401k for those reasons.

Tidybuoy · 02-10-2019, 06:47 PM

What's done is done.

I know I have to pay taxes which is why I had them take $3k out for tax. My question is specifically about the 10% penalty. I had to justify a hardship to my 401k administrator but now that I am doing my tax return, I don't see a way for getting out of the penalty. My plan does not allow for loans. If I have to pay the 10% fee, I'll survive but it would be nice to not have to pay it.

Sooner or later · 02-10-2019, 07:01 PM

Quote:

Originally Posted by Tidybuoy

What's done is done.

I know I have to pay taxes which is why I had them take $3k out for tax. My question is specifically about the 10% penalty. I had to justify a hardship to my 401k administrator but now that I am doing my tax return, I don't see a way for getting out of the penalty. My plan does not allow for loans. If I have to pay the 10% fee, I'll survive but it would be nice to not have to pay it.

I understand but I don't see a way out. A shame about no loans available.

Your request had norhing to do with the 20% that was withheld. By IRS rules 20% is a minimum requirement on a withdrawal or transfer made by check to a recipient.

Sooner or later · 02-10-2019, 07:03 PM

BTW. You did right taking care of family.

LakeCleElum · 02-10-2019, 07:40 PM

Your "Plan" has to have a provision for Hardship Withdrawals. So do, some don't .....Contact HR

Good info here:

https://www.goodfinancialcents.com/401k-hardship-withdrawals-rules/

Tidybuoy · 02-11-2019, 01:34 PM

Quote:

Originally Posted by LakeCleElum

Your "Plan" has to have a provision for Hardship Withdrawals. So do, some don't .....Contact HR

Good info here:

https://www.goodfinancialcents.com/401k-hardship-withdrawals-rules/

You are correct. And, my post states that I already took the hardship withdrawal. I'm just wondering if that same hardship will carry over to my tax return (which my plan does not do for me).

kach22i · kach22i's Garage

I believe you only have to pay taxes on an early 401K withdraw if you made money on it.

Sometimes the stock market takes a dive and you break even or lose money, then you don't owe anything.

Using that reasoning you will be paying only on the profit the 401k made, not the entire amount.

I don't use TurboTax, so cannot answer the rest of the question.

flatbutt · 02-11-2019, 01:51 PM

Quote:

Originally Posted by Tidybuoy

You are correct. And, my post states that I already took the hardship withdrawal. I'm just wondering if that same hardship will carry over to my tax return (which my plan does not do for me).

I'd be stunned if it does. I needed to write a $10,000 check for my Moms medical care and couldn't get any kind of break since she wasn't my dependent.

Sooner or later · 02-11-2019, 02:18 PM

Quote:

Originally Posted by kach22i

I believe you only have to pay taxes on an early 401K withdraw if you made money on it.

Sometimes the stock market takes a dive and you break even or lose money, then you don't owe anything.

Using that reasoning you will be paying only on the profit the 401k made, not the entire amount.

I don't use TurboTax, so cannot answer the rest of the question.

Wrong

401k money is pre tax. You must pay tax at the current rate on all money within the plan when it is withdrawn.

Sooner or later · 02-11-2019, 02:23 PM

Quote:

Originally Posted by Tidybuoy

You are correct. And, my post states that I already took the hardship withdrawal. I'm just wondering if that same hardship will carry over to my tax return (which my plan does not do for me).

The hardship gives you a release to get the money. It does not give you a release on taxes or penalty. You can only get a release on penalty if you meet the short list of criteria that I posted earlier.

Spend a few bucks and talk to an expert or call the Turbo Tax guy.

wdfifteen · wdfifteen's Garage

Quote:

Originally Posted by flatbutt

I'd be stunned if it does. I needed to write a $10,000 check for my Moms medical care and couldn't get any kind of break since she wasn't my dependent.

Make it a loan. If she can’t pay it back, write it off as a loss.

sammyg2 · 02-11-2019, 05:08 PM

About 10 or years ago, the company I worked for got bought out and one of the guys who reported to me evidently got spooked for some reason, and decided to pull all his 401k money out. He had been there over 30 years at the time. And he spent most of it, paying off huge debt, daughter's student loans, etc.
Then to top that trick, he decided not to report it to the IRS come tax time. They'll never know right?

Well it turns out that they're funny about such things.
Many years later they stopped garnishing his wages.

He ended up working until long after he was eligible for retirement.

Please forgive me for unsolicited preaching, but pulling out 401k money and spending it on something other than retirement should be an absolute last resort. Only if you can't get it anywhere else.

KFC911 · 02-12-2019, 04:06 AM

Quote:

Originally Posted by sammyg2

....

Please forgive me for unsolicited preaching, but pulling out 401k money and spending it on something other than retirement should be an absolute last resort. Only if you can't get it anywhere else.

I did something REALLLY stupid 3 decades ago

. Way before I did sumthin' else stupid....remember the orb

? I've always pulled $ from a 401k (the day I left)...been draining the results to my advantage (taxes), never spending....yet. Everyone's situatuon is so different...dang...I wuz stupid in my 20s....but I had a blast