Early withdrawl 401K exceptions

1 reply
238 views

I had no income (W2s) as I have been trying to get disability with my medical problems. I ended up taking out $2500.00 from a work 401K and when I did my taxes I owe $250.00 for federal (early with-drawl) and $83.00 for state. Is there any way to mitigate this so I don't have to pay it. My disability has been denied and is currently in appeal. Anybody have any insight into this?

DaveF1006

Alumni - Intuit

it depends. The 10% early withdrawal penalty on a 401(k) is only waived for certain IRS‑approved hardship exceptions. In your case, if you are totally and permanently disabled, the penalty can be waived. To claim this waiver, your doctor must be willing to provide a letter stating your condition is permanent/long-term and prevents you from working.

You don't have to mail the doctor's note with your return, but you must keep it in your records in case of an audit.

Most states follow federal guidelines for retirement penalties. If you successfully claim the federal disability exception using Form 5329, your state may waive their portion of the penalty as well.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"