In 2006 I was employed by a company with whom I had a 401K. That year I took out a loan for $20,000 to use for a real estate investment. In early 2007 I left that employer so the balance of that loan became an early withdrawal. In the latter part of 2007 I cashed out the remainder of the 401K plan and invested it in my business. Is there a way for me to show this on my income tax return so that I can offset the 10% early withdrawal. I filed an extension for my return so that I could work on this issue but I need to get the return filed.Rupert

No. The full value of the distribution (less any post tax contributions) represents taxable income for 2007. The 10% penalty comes off the top of that. If your business is run as a sole proprietor and you have losses from your business that can be use to offset your total tax liability.

No, you would have had to roll the entire amount over into another qualified plan. You will have to pay the penalty for using that money in the way you did ( plus of course pay your regular federal and state tax on the money)

To Scott Gem, Thank you for the information. You actually gave me just the right information and was direct to the point. I will be contacting you in the future directly. Thanks so much . Rupert

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Originally Posted by Rupert Negley

To Scott Gem, Thank you for the information. You actually gave me just the right information and was direct to the point. I will be contacting you in the future directly. Thanks so much . Rupert

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I'm sorry, but please don't contact me directly. I won't respond. This forum is designed for people to learn not only by asking questions, but by reading the answers to other people's questions. Therefore any questions you have should be posted publicly. I'm not the only expert here, there are several good people.

I do take direct contact on a fee basis, but I wouldn't take on tax questions for a fee because that is not a primary area of expertise for me.