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    dixie19096's Avatar
    dixie19096 Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Feb 13, 2009, 07:45 AM
    401 withdrawal
    We recently cashed in our 401 to pay the house off. Are we responsible for paying
    Federal and State Income tax on the total amount of the withdrawal.
    Emland's Avatar
    Emland Posts: 2,468, Reputation: 496
    Ultra Member
    		  
    #2

    Feb 13, 2009, 07:52 AM

    You should have been given paperwork that explains your tax liability and the penalty fees associated with early withdrawal.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #3

    Feb 13, 2009, 08:12 AM

    Since you already did this, its too late to tell you what a dumb move that was.

    Instead of having a tax deduction for your mortgage interest, you now have to pay taxes on your distribution PLUS a 10% penalty. That 10% will probably wind up costing you WAY more than the interest you saved by paying off the mortgage.

    So the answer is yes. Unless you were over 55, you will have to pay the 10%, Even if you were over 55 you might still have to pay it. As for the taxes, you will need to add the amount of your distribution to your taxable income for the year of distribution and then pay taxes on your total income.
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