I was forced to resign earlier this year and took a job making about 40% of what I used to. I had to take money out of my 401(k) to pay the rent and other bills a couple times. I paid the 20% tax on this, but I thought it or the penalty was avoidable in a situation like this. Am I correct? What would I need to do to avoid this additional penalty?

Also, I don't know if you can help on this one, but the 401(k) was made primarily in FLA with no state tax. Do I need to pay state income tax on this money now that I am in GA?

Unless the withdrawal was made under hardship rules (and your situation doesn't appear to qualify), the penalty is in place.

As for the taxes. I believe the income is taxed based on the state where its withdrawn, not where its earned.

Also, the 20% witholding is not (as I recall) the amount of tax. It's a witholding, just like the amounts withheld from your paycheck, the actual tax on the income is calculated in your return.

So rent, power, heat, etc. do not qualify as hardship? LOL.
Got to love that government! ;)

Thanks.

In this case, no. There are very specific rules about what constitutes a hardship withdrawal.

HI,
If I may make a suggestion, call a CPA in your local area. The going rate here in my local area is less than $150 for doing both Federal and State taxes.
They might be able to save you more than that on your taxes.
There are other considerations also, since your income has dropped in salary. The CPA would know what would save you the most money in taxes.
Best wishes.

Agree with all advice given; nothing to add!

Thank y'all very much

Glad to help!