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    jjbski's Avatar
    jjbski Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Jan 1, 2009, 09:04 PM
    401k penalty
    If you were to pull money out of a 401k and have to pay the taxes on the early withdrawal - I understand this cost. The question that I have is that if you put in say $100,000 into the 401k and it is only worth $80,000 now, are you able to write off the $20,000 in reduced value?

    The logic is that because you earned this money and now the $20,000 is gone, can you use this to help offset the taxes that you would pay on your income taxes when filing in the following year?
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #2

    Jan 2, 2009, 11:22 AM
    There IS a methodology available by which you can claim the loss as an ITEMIZED deduction on your tax return for the loss in IRAs.

    I am not sure this same methodology would apply for a 401K, though I suspect NOT due to the tax-deferred match provided by your employer.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #3

    Jan 2, 2009, 11:25 AM

    The only way there would be a loss is if the value of the account is less than the contributions. With company matches that is rarely the case. Even with the floor falling out of the market.

    There is also the issue that you would not HAVE to make a withdrawal. By doing so, you are locking in losses that you would not have to have done.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #4

    Jan 2, 2009, 11:32 AM
    Good points, Scott!
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