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Question

401k Tax on Distribution (not a common transaction)

Forum|Forum|1 year ago
February 4, 2025
1 reply
0 views

I withdrew from my 401k to buy my granted company ISO shares. I'm over 60, so I know I don't have the 10% penalty. The question is, am I going to be taxed twice on the withdrawal? Once for 401k distribution and once when I exercise the shares? Also, since I'm not pocketing the money from the distribution (it's being reinvested), is there any right-off or tax credit available to me?

You will not be taxed twice on the withdrawal. You will have to pay the tax on the distribution now (you should receive a 1099-R), but when you sell the shares, you will have basis on the amount you are purchasing the shares for so you will only pay tax on the gain. Unfortunately, there are no additional write-offs available for this transaction.