My husband withdrew from his 401k in 2007 to help our kids with college. We declared it, paid taxes on it. Now the IRS is coming back and telling us we didn't pay enough taxes. My question is 1. What was the % of taxes we should have paid in 2007 for a withdraw and 2. Has the tax laws changed since 2007 as to how much we should be taxed, I know they can retro the amount of tax you owe if the law changes.

The taxes you should have paid depends on your TOTAL income for the year. The taxable amount of a 401(k) distribution (the amount would have been listed on your 1099R) is added to your other taxable income to determine your total tax liability.

I suspect that you had 20% withheld, and therefore figured that was all that was needed. Also, did you pay the 10% penalty?