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    Kabe7's Avatar
    Kabe7 Posts: 2, Reputation: 1
    New Member
    		  
    #1

    Jan 14, 2009, 04:14 PM
    401K Penalty and 1040 itemized deductions
    If I take an early distribution from my 401K it will be taxable income as well as a 10% penalty. Let's say the penalty is $5K ($50K withdrawal). If I was unemployed and the deductions exceed my taxable income can that be applied toward the penalty?
    MukatA's Avatar
    MukatA Posts: 7,110, Reputation: 176
    Tax Expert
    		  
    #2

    Jan 14, 2009, 07:23 PM

    Withdrawal from 401K is treated as ordinary income just like your other income like wages, interest and dividends.
    If your itemized deductions exceed your Gross income, you have a negative income.
    Read http://taxipay.blogspot.com/2008/08/...01k-plans.html
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #3

    Jan 15, 2009, 10:27 AM
    The 10% Early Withdrawal Penalty cannot be mitigated by deductions, credits or exemptions.

    That means that, even if all of your exemptions and credits offset the normal income taxes, resulting in negative income, you STILL would have to pay the $5,000 in Early Withdrawal Penalties.
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