I know that early 401k withdrawals are subject to a 10% penalty and income taxes in your current tax bracket. But is the income treated as earned income. Do you pay social security taxes Medicare taxes on it? Also is if this would be my only income, do I still get to claim the standard deduction and exemption although I won't have any wage income.

Please don't cross post. This is more of a tax question. Your other post will be removed.

The distribution from the 401K is considered income subject to local, state and federal INCOME taxes.

It is NOT earned income subject to Social Security and Medicare taxes.

Yes, you would be able to use your standard deduction and personel exemption to offset the income tax due on this 401K distribution.

However, the standard deduction and personal exemption will NOT affect the 10% Early Withdrawal Penalty, which cannot be mitigated.

Example: If you take $8,700 from your 401K and it is your ONLY income for 2007, you will pay NOTHING in income taxes due to the standard deduction and your personal exemption. However, you WILL pay $870 for the 10% Early Withdrawal Penalty.

Thanks AtlantaTaxExpert. Your answer and the example was exactly what I needed.


The distribution from the 401K is considered income subject to local, state and federal INCOME taxes.

It is NOT earned income subject to Social Security and Medicare taxes.

Yes, you would be able to use your standard deduction and personel exemption to offset the income tax due on this 401K distribution.

However, the standard deduction and personal exemption will NOT affect the 10% Early Withdrawal Penalty, which cannot be mitigated.

Example: If you take $8,700 from your 401K and it is your ONLY income for 2007, you will pay NOTHING in income taxes due to the standard deduction and your personal exemption. However, you WILL pay $870 for the 10% Early Withdrawal Penalty.

Glad to help!