In the last year, 2007, my wife withdrew funds from her 401k that she had with the company she used to work for. We got a statement from the bank that held it indicating the amount that was taken out. She has been drawing disability pay monthly for the last 2 years. What would be her tax liabilty, if any, on the money that was taken out of the account?

Do you file jointly as married? If so, then the total amount of the withdrawal is added to your joint income and taxed accordingly.

In the last year, 2007, my wife withdrew funds from her 401k that she had with the company she used to work for. We got a statement from the bank that held it indicating the amount that was taken out. She has been drawing disability pay monthly for the last 2 years. What would be her tax liabilty, if any, on the money that was taken out of the account?
We do file jointly. We use TurboTax to do our taxes and I figure it will usually asks the questions about disability. I didn't know if this had to have a separate file status. Thanks for the heads up.

If your wife is disabled, you can attach Form 5329 to the return to claim an exception to the 10% Early Withdrawal Penalty.

You STILL have to pay taxes, though.