Early withdrawal of 401k for hardship...taxable or not?

Forum|Forum|2 years ago
February 22, 2024
2 replies
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My husband's mother passed away in 2023. She didn't have life insurance so my husband took an early withdrawal to pay the funeral cost and 20% in taxes. When filing our return it asked if the withdrawal was for funeral cost and it was so it said this amount would not have the 10% penalty. We filed Feb 1st and refund isn't approved yet. Worrying we made a mistake, I dug deeper and am seeing this may only apply for waival of the fee IF the person was a dependent (which she wasn't or if you inherited the money from someone else's 401k that died. So does anyone know if that is accurate. If we do need to pay the penalty, what will happen? Will we get refund minus that penalty? Do we need to ammend? Will we get a letter? I cannot find a way to contact the IRS except automated only.

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Best answer by dmertz

"When filing our return it asked if the withdrawal was for funeral cost and it was so it said this amount would not have the 10% penalty."

Nowhere does TurboTax say that. TurboTax does say the "death" is an exception to the early-distribution penalty, but that only applies to distributions from the retirement account of the decedent, not to a distribution from your husband's 401(k). There is no exception to the penalty for using the funds to pay for a funeral.

You might be confusing this for reasons for the 401(k) plan to permit a hardship distribution.

dmertzAnswer

Employee

"When filing our return it asked if the withdrawal was for funeral cost and it was so it said this amount would not have the 10% penalty."

You might be confusing this for reasons for the 401(k) plan to permit a hardship distribution.

Opus 17

Employee

Withdrawals from a pretax retirement account are always taxable, no exceptions. The contributions are tax-free, so the withdrawals are always taxable. There are some exceptions to paying the 10% additional penalty for early withdrawal, but a funeral is not one of the exceptions.