[lcol7777]

I was forced to take an early retirement package. I was 53 yrs old I need to cash in my 401k because I need to clear up some bills, repair my auto and I wanted to make some home improvements. I had to pay 20% penalty on 35K (7,000) for cashing 401k early... now while doing my takes I see I must pay another 10% penalty 3,500. Can I claim either of these on my income tax... where?::(

[ScottGem]

Apparentally no one explained to you what this was all about. The 20% was not a penalty, its was a withheld amount towards your tax liability. Just like the amount withheld from your paycheck. The 10% is the penalty for taking an early withdrawal from your 401K.

You should have gotten a 1099R statement that the taxable value of your distribution was $35K and that $7K was withheld for taxes. So the $35K is added to your taxable income for the year and used to figure out the taxes due. The $7K is applied towards that amount along with what was withheld from your paycheck (reported on your W2).

The 10% penalty is not taxdeductible since it's a penalty.

[Fr_Chuck]

Yes taking money out of the 401 K is a very expensive way to get money, and should only be used as a last resort. You lose the interest you would get, have to pay taxes on the money as income and then pay a penalty, it is often cheaper to just go borrow the money short term instead if possible.

And unless this is for health issues, perhaps another job to earn income to pay the bills

[AtlantaTaxExpert]

Fr Chuck and Scott covered all the hideously bad details.

I see no reason to pile on!