401k distribution

Question

Jan 9, 2007, 01:20 PM

kactreynolds

New Member

Join Date: Jan 2007

Posts: 1

401k distribution

My husband died in 2006, he had a 401k with me (spouse) as his benificiary. We have 2 young sons and I cashed out the 401k to use for the down payment of a primary residence. All of the paperwork has not been done, but I will get all of the papers in order during 2007. Is there a certain amount of time that I have to reinvest the 401k before I have to pay a lot of taxes on it? Please let me know.

Thanks
Karen

Answers

Jan 11, 2007, 07:43 AM	#2

AtlantaTaxExpert

Tax Expert

Join Date: Feb 2005

Location: Atlanta, Georgia

Posts: 9,674

Karen:

If you have NOT cashed out yet, a BETTER way to handle this is to roll the 401K over into a rollover IRA.

Once that is done, you can then take the distribution from the IRA and probably claim the First Time Home Buyer exception on up to $10,000 of the distribution. The money will still be subject to federal and state income taxes, but the first $10,000 will be exempt from the 10% Early Withdrawal Penalty.

The First Time Home Buyer Exception does NOT apply to 401K distributions.

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