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bumjmud
Jan 26, 2009, 09:15 AM
We recently built a house and needed some cash, so I dipped into my 401k for it. What do I need as proof for using the money for the construction. Also, my bank withheld the tax money. So how do we file with that?

ScottGem
Jan 26, 2009, 10:17 AM
What do you think that proof will get you?

Its not going to change the tax liability or penalty on the withdrawal.

ebaines
Jan 26, 2009, 10:49 AM
You do not need any proof regarding what the money was used for - it doesn't matter. The bank is required to withhold 20% for taxes. They will send you a 1099-R form that lists the amount of the withdrawal and the amount withheld. You report the distribution as follows:

1. You report the full amount of the withdrawal on line 16 of your 1040 - "Pensions and annuities."

2. You include the 10% early withdrawal penalty on line 60 of form 1040 - "Additional tax on IRAs, other qualified retirement plans, etc."

3. The amount that was withheld for taxes you report on line 64 - "Federal income tax withheld from Forms W-2 and 1099."

AtlantaTaxExpert
Jan 26, 2009, 12:08 PM
What Scott and ebaines said is correct.

Unfortunately, you made a common mistake: you assumed that withdrawing money from your 401K for the first-time purchase of a home makes you exempt from the 10% Early Withdrawal Penalty.

That is true ONLY IF the withdrawal is from a traditional IRA. It does NOT apply for withdrawals from 401Ks.