[bpavel]

My husband took money out of our 401K plan to put down on a new home. He knew there was a tax penalty, which we paid up front. However, we didn't research this option enough and discovered this amount was added to our taxable income. We owe a ton now! I thought we borrowed the money, but we actually didn't. Any way of fixing this issue or are we stuck losing our entire savings?

[smoothy]

Legally once the money is disbursed.. (as in it touches your hands metaphorically).. the deed is done.

[ebaines]

Check with your plan administrator, but I believe that you can actually return the money within 60 days and essentially "undo" your withdrawal. But to make this work you must return the ENTIRE withdrawal, including the amount that was withheld for taxes. So you have to come up with more cash than you actually received.

BTW - what they took up front should have been 20%, which is withholding against your income taxes, NOT just for the 10% early withdrawal penalty. What you really owe in taxes is dependent on your new, higher tax bracket plus the 10% penalty, minus the 20% already withheld. And you may also owe state income tax as well, depending on where you live.