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Cashing 401K and taxes

I cashed in my 401K to move and buy a house in another state, can I claim my down payment on my return to help. I paid the required taxes on the early withdrawal at the time of payout am I only supposed to pay the extra 10% at tax time. I also used this money to pay off my credit card debts, does that count??

Posted Answers

Tracy L. Coenen

80 answers

29 thumbs up

Tracy L. Coenen is WalletPop's Tax Expert and Fraud Expert

Your down payment on a house is not a deductible item on your tax return.

When you withdrew your money from your 401(K), there was a certain amount withheld from that distribution toward the taxes you will owe. But it may not be enough to cover all the income taxes and the 10% penalty, so you should be aware that you may still owe money. I typically advise taxpayers that about 50% of their total distribution will end up being paid in taxes and penalties. So look at how much was withheld from your gross distribution to help estimate how much you might still owe. (Also consider that if you usually get a refund when you file your taxes each year, that amount will be applied against what you owe on the distribution.)

Paying off credit card debts with your 401(k) money will not affect your taxes. You don't get any benefit on the taxes from paying off credit cards.

Posted 3 months ago ( permalink )

In reply to Parle-G's question