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tdv51
New Member

I cashed in a 457b when I left my employer last year. I used the funds to pay my college loans. Is there a way to avoid some of the taxes or to claim this as an education expense?

 
3 Replies
MayaD
Expert Alumni

I cashed in a 457b when I left my employer last year. I used the funds to pay my college loans. Is there a way to avoid some of the taxes or to claim this as an education expense?

There is no penalty for an early withdrawal from your 457b account, but you still have to pay income tax on any money you withdraw from a 457 plan.

Paying your college loans can't be claimed as education expenses, however, you might be able to claim the Student interest loan paid as an adjustment to your income.

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LeviL
Returning Member

I cashed in a 457b when I left my employer last year. I used the funds to pay my college loans. Is there a way to avoid some of the taxes or to claim this as an education expense?

I recently left my employer as well and was planning to use some of the funds from my 457 plan to pay off student loans.  I live in Washington State so there is no income tax, just federal taxes.  The company my 457 plan is through (ICMA-RC) takes 20% when you do the withdrawal.  I was told that is for the federal taxes.  Will I be charged an additional income tax on my yearly taxes or will the tax be considered withdrawn already?  I want to avoid paying the 20% twice as it would be about $20K.

macuser_22
Level 15

I cashed in a 457b when I left my employer last year. I used the funds to pay my college loans. Is there a way to avoid some of the taxes or to claim this as an education expense?


@LeviL wrote:

I recently left my employer as well and was planning to use some of the funds from my 457 plan to pay off student loans.  I live in Washington State so there is no income tax, just federal taxes.  The company my 457 plan is through (ICMA-RC) takes 20% when you do the withdrawal.  I was told that is for the federal taxes.  Will I be charged an additional income tax on my yearly taxes or will the tax be considered withdrawn already?  I want to avoid paying the 20% twice as it would be about $20K.


The tax withheld will be in box 4 on your 1099-R form and will be applied to offset your overall tax.   20% is just the mandatory withholding - the actual tax depends on your other income and margional tax bracket.   20% may or may not be enough to pay the tax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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