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Q. I did an early withdraw on my 401k for a first time homebuyer. The first $10k is suppose to be exempt. Right?
A. No. There are two things wrong.
1. There is only an "exemption" from the 10% early withdrawal penalty, not the tax on the distribution
2. The first time homebuyer penalty exception applies only to IRA withdrawals. 401k accounts are not eligible.
Reference:
If it was an IRA, instead of a 401k, then the penalty exception will appear on line 2 of form 5329 with code 09.
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