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January 28, 2025
Question

I had to do an early withdrawal from my 401k for mom's funeral, one page says it's tax free the next page says it's taxable income, why?

  • January 28, 2025
  • 2 replies
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    2 replies

    January 28, 2025

    Withdrawals from a 401k are considered taxable income.  However, if you are under 59 1/2, the IRS will charge an additional early withdrawal penalty for taking a withdrawal early.  The penalty can be waived if you meet certain criteria.  Per the IRS, "plans may allow a hardship distribution to pay for your, your spouse’s, your dependents’ or your primary plan beneficiary’s":

    • medical expenses,
    • funeral expenses, or
    • tuition and related educational expenses

    When entering into TurboTax if you entered this as a hardship distribution, the early withdrawal penalty was removed but the withdrawal amount is still subject to income tax.  

     

    For more information, see the link below:

     

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    Employee
    January 28, 2025

    Withdrawals from a pre-tax 401k are always taxable.  In most cases, you also pay a 10% penalty if you are under age 59-1/2.  There are a few exceptions to the penalty, but the only one that might apply to you is you can exclude $1000 from the penalty for a personal emergency.  But if you withdrew more than $1000, you pay the penalty on the rest and tax on all of it.

     

    Even though your plan may allow a hardship withdrawal, it is still taxable. 

     

    If you have left the company, you can withdraw for any reason (you do not have to prove a hardship) but you still pay income tax and penalties.