I was out of work due to surgery and was on unpaid leave. I had to draw from my 401k to pay all expenses. Would this exempt me from additional tax penalties?

[GeoffreyG]

We are truly sorry to hear about your medical problems; these can often be both unpredictable and financially draining.

With respect to the money withdrawn from your 401(k) account, the good news is that it will be exempt from the 10% additional "penalty" tax for taking money out before age 59-1/2.  Paying medical expenses with your 401(k) qualifies as one of the valid exceptions (the TurboTax software will ask you numerous questions about your retirement withdrawal, eventually leading up to a screen that indicates you're exempt from the 10% penalty tax).

The bad news is that the 401(k) money is still subject to ordinary income taxes (just not the penalty tax), but you probably already knew that.

If you experience any problems with your data entry, please post a follow-up question on this board and I, or another AnswerXchange contributer can help walk you through the mechanical steps.

Thanks for your question, and please get well soon.

[Edited 01-14-2017]

The additional information provided by one of our AnswerXchange SuperUsers in the comments section is absolutely correct; and it gives a more complete answer to your question.

[dmertz]

If you are age 59½ or older, or reached age 55 in or after the year in which you separated from service from the company providing the 401(k) (if you indeed have separated from service), you are not subject to an early-distribution penalty on the 401(k) distributions.  Otherwise, only the portion of medical expenses for which you receive a deduction on Schedule A (or would receive as a deduction if you itemized) can be applied as an exception to the early-distribution penalty.  If the total of your 401(k) distributions was more than the portion of medical expenses in excess of 10% of AGI (or 7.5% of AGI if either you our your spouse is age 65 of older), you will be subject to some amount of early-distribution penalty unless a different exception applies

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