Q. Can I withdraw 7000 from my 401k and offset the income tax from 401k to my standard deduction and net to zero INCOME tax?
A. Yes. But, you will pay self employment tax (social security and Medicare [FICA] tax) on the net self employment income.
Q. When I put the 5000 on my tax, should it be under self-employed or other income?
A. Self Employment, if you baby sit in your own home.
If you baby sit in the parent's home, you could be classified as a "household employee". Grandparents working as household employees are exempt form social security and Medicare [FICA] tax (there are exceptions).
Q. In this case, will I get a tax refund for taxes I paid for the 7000 401k withdrawal?
A. Yes. Instead, you should ask 401k plan administrator not to withhold any income tax, unless you want to cover the self employment tax , in advance.
