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posted Jun 1, 2019 1:34:17 PM

I took out 7000 from my 401k to take care of expenses....I had 2100 in taxes taken out....should the apparent overpayment in taxes help with the penalty

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Level 15
Jun 1, 2019 1:34:18 PM

All of your federal withholding from all sources goes into the same bucket and is credited to you on your tax return. If the 2100 was more than the tax on the withdrawal after the withdrawal was added to your other income, the balance would be applied to your early withdrawal penalty or to other taxes owed. But there is no way of knowing from your tax return what withholding from the 401K withdrawal went for what purpose because all the withholding is added together on your tax return. 

2 Replies
Level 15
Jun 1, 2019 1:34:18 PM

All of your federal withholding from all sources goes into the same bucket and is credited to you on your tax return. If the 2100 was more than the tax on the withdrawal after the withdrawal was added to your other income, the balance would be applied to your early withdrawal penalty or to other taxes owed. But there is no way of knowing from your tax return what withholding from the 401K withdrawal went for what purpose because all the withholding is added together on your tax return. 

Level 15
Jun 1, 2019 1:34:19 PM

$2,100 of $7,000 is 30%, so after subtracting the 10% early-distribution penalty of 10% that leaves 20% to cover ordinary income taxes.  That remaining 20% is likely to cover a good part, if not all, of the ordinary income tax liability resulting from this distribution, but there can also be circumstances where your marginal tax rate is higher than your tax bracket rate, say, due to potential loss of certain tax credits as a result of this distribution.

Don't forget about state income taxes.