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February 8, 2025
Question

I withdrew my under $3000 401k due to a sudden job loss. Can I select "eligible emergency expenses" or "other" to possible reduce my tax bill

  • February 8, 2025
  • 2 replies
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    2 replies

    February 8, 2025

    Yes, sounds like it may qualify as an "emergency." An emergency will allow you to make a withdrawal, still subject to tax, but without the 10% early withdrawal penalty.  You can take one financial withdrawal emergency per year, not to exceed $1,000. So, $2,000 of your withdrawal won't be eligible for penalty relief.

     

    Here is some more information: What are the exceptions to the penalty for an early withdrawal from my 401(k)?

    Employee
    February 8, 2025

    "Other" does not apply.

     

    $1,000 of the $3,000 would qualify for the emergency-expense exception only if you actually needed the money for an unforeseeable or immediate financial need.  Losing a job would not necessarily create such an financial need.

     

    See Q&A 1 and 2 in IRS Notice 2024-55:  https://www.irs.gov/pub/irs-drop/n-24-55.pdf