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    tmariehow's Avatar
    tmariehow Posts: 1, Reputation: 1
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    #1

    Mar 19, 2008, 04:30 PM
    401 k tax penalty
    I am 43 years old. In 2007 I took a hardship & removed $20,000 from my 401k. $2.000.00 was taken for taxes. I applied the rest in the purchase of my first new home. Now that it is time to file for tax season, will I have to pay taxes on the $18,000 that I used as a downpayment on a home loan? Does the IRS take in account that it was used to purchase a home?
    jpsrao's Avatar
    jpsrao Posts: 3, Reputation: 1
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    #2

    Mar 19, 2008, 05:08 PM
    I have the same question. Can some one answer in clear
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #3

    Mar 19, 2008, 08:35 PM
    You will have to pay taxes on the full $20K. You will also have to pay the 10% early withdrawal penalty, which is another $2K. The fact that you used the money to purchase a home does not mean you get the money tax free, and because you are under 59-1/2 you also have the early withdrawal penalty. There is often confusion on this point - if you had taken the money from an IRA you would not have the penalty, as a first home purchase is an allowable exception to having to pay the penalty. But for early withdrawals from a 401(k) the 10% penalty still applies.
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