401k distribution tax

4 replies
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I took a 401k distribution and am over 59-1/2. I know that this distribution is taxable but am wondering if it can be offset by losses on the fund on which the funds were distributed from

VolvoGirl

Level 15

Sorry no. It it taxed as ordinary income. If you had losses you will have less income to take out and pay tax on.

DoninGA

Level 15

Gains or losses within a 401(k) retirement account are not reported on a tax return.

A distribution from a 401(k) is reported to you on Form 1099-R. The taxable amount of the distribution shown in box 2a of the form is entered on your tax return as ordinary income and taxed at your current tax rate.

The 401(k) plan administrator will send you a Form 1099-R in January 2023 for distributions made to you in 2022.

To enter, edit or delete a form 1099-R -

Click on Federal Taxes (Personal using Home and Business)
Click on Wages and Income (Personal Income using Home and Business)
Click on I'll choose what I work on (if shown)
Scroll down to Retirement Plans and Social Security
On IRA, 401(k), Pension Plan Withdrawals (1099-R), click the start or update button

Or enter 1099-r in the Search box located in the upper right of the program screen. Click on Jump to 1099-R

Opus 17

Level 15

To put it simply, because you put the money in the 401(k) pretax (that is without paying any tax on it), everything you withdraw is taxable when you withdraw it, even if you withdraw less than you put in because of losses.

NCperson

Level 15

@texasttaxguy - the IRS already gave you a 'gimmie' on the losses: you had a loss within the 401K on money you never paid taxes on in the first place!

They will never ask you to pay income tax on the devalued investment; that is actually much better than if the loss occured in a after-tax account as you could only net losses against gains and then only take an additional $3000 in deductions against ordinary income.

Better to lose money in an 401k than an after tax account, but better to gain money in an after-tax account than a 401(K).... in an after tax account that gain is taxed (for most people) at 15% while the distributions from the 401(k) are taxed as ordinary income, which for many is a tax bracket above 15%.