I cashed in a 457b when I left my employer last year. I used the funds to pay my college loans. Is there a way to avoid some of the taxes or to claim this as an education expense?

Forum|Forum|6 years ago
April 9, 2020
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MayaD

There is no penalty for an early withdrawal from your 457b account, but you still have to pay income tax on any money you withdraw from a 457 plan.

Paying your college loans can't be claimed as education expenses, however, you might be able to claim the Student interest loan paid as an adjustment to your income.

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LeviL

I recently left my employer as well and was planning to use some of the funds from my 457 plan to pay off student loans. I live in Washington State so there is no income tax, just federal taxes. The company my 457 plan is through (ICMA-RC) takes 20% when you do the withdrawal. I was told that is for the federal taxes. Will I be charged an additional income tax on my yearly taxes or will the tax be considered withdrawn already? I want to avoid paying the 20% twice as it would be about $20K.

macuser_22

Employee

@LeviL wrote:

I recently left my employer as well and was planning to use some of the funds from my 457 plan to pay off student loans. I live in Washington State so there is no income tax, just federal taxes. The company my 457 plan is through (ICMA-RC) takes 20% when you do the withdrawal. I was told that is for the federal taxes. Will I be charged an additional income tax on my yearly taxes or will the tax be considered withdrawn already? I want to avoid paying the 20% twice as it would be about $20K.

The tax withheld will be in box 4 on your 1099-R form and will be applied to offset your overall tax. 20% is just the mandatory withholding - the actual tax depends on your other income and margional tax bracket. 20% may or may not be enough to pay the tax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**