Received a 401k distribution check and used it when closing on a house (check dated 125 days from the closing date), is it void? /Is it only to be used for the downpymt?

[DexterS]

If you take a 401-K distribution, and you are younger than 59 1/2 you pay income tax on the distribution and a Federal early withdrawal penalty of 10%.  Most states also charge an early withdrawal penalty.

There are several exceptions that allow you to exclude some or all of an early distribution from the penalty.

Because this was a 401-K distribution, not an IRA Distribution Exception #9 does not apply.  Possibly one of the others might offer you some relief.

You still pay tax on the total distribution.

Here is a list of all the Exception Codes:

#.  – Exception Description

01      Qualified retirement plan distributions (does not apply to IRAs) you receive after separation from

          service when the separation from service occurs in or after the year you reach age 55

          (age 50 for qualified public safety employees).

02    Distributions made as part of a series of substantially equal periodic payments (made at least

         annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and

         your designated beneficiary (if from an employer plan, payments must begin after separation

        from service).

03   Distributions due to total and permanent disability.

           You are considered disabled if you can furnish proof that you cannot do any

           substantial gainful activity because of your physical or mental condition. A medical determination

           that your condition can be expected to result in death or to be of long, continued, and indefinite

           duration must be made.

04   Distributions due to death (does not apply to modified endowment contracts).

05   Qualified retirement plan distributions up to the amount you paid for unreimbursed medical

        expenses during the year minus 10% (or 7.5% if you or your spouse were born before

        January 2, 1952) of your adjusted gross income (AGI) for the year.

06   Qualified retirement plan distributions made to an alternate payee under a qualified domestic

       relations order (does not apply to IRAs).

07   IRA distributions made to certain unemployed individuals for health insurance premiums.

08   IRA distributions made for qualified higher education expenses.

09   IRA distributions made for the purchase of a first home, up to $10,000.

10   Qualified retirement plan distributions made due to an IRS levy.

11   Qualified distributions to reservists while serving on active duty for at least 180 days.

12   Other (see Other next). Also, enter this code if more than one exception applies

See the following link to Form 5329 for more details:

Instructions for Form 5329

[Edited 01.25.17]

[macuser_22]

I must differ with the answer.  The list you gave is for an IRA #9 (and others) *only* applies to an IRA, not a 401(k).   There is *no* first home exception  for a 401(k).

See:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...>

[DexterS]

Thanks, I'll fix it.

[jessica-glenn918]

Sorry - I see that we rolled the 401k into an IRA before we took the distribution.  With that, is there a time limit to using those dollars for the downpayment?  We appear to have been 125 days from the date of the check to the date we closed on the house.  I'm assuming you can only use the amount that you spent on your actual downpayment, correct?  Thank you!

[jessica-glenn918]

Note: our offer was accepted and signed prior to 120 days - if that has any bearing.

[macuser_22]

If the distribution came from A Traditional IRA and not a 401(k), then the exception does apply.  

From IRS PUB 590B
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p590b/ch01.html#en_US_2016_publink1000230896">https://www.irs.gov/p...>

First home.   Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.

    It must be used to pay qualified acquisition costs (defined next) before the close of the 120th day after the day you received it.

    It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined below) who is any of the following.
        Yourself.
        Your spouse.
        Your or your spouse's child.
        Your or your spouse's grandchild.
        Your or your spouse's parent or other ancestor.
    When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.

If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.

Qualified acquisition costs.   Qualified acquisition costs include the following items.
    Costs of buying, building, or rebuilding a home.
    Any usual or reasonable settlement, financing, or other closing costs.

First-time homebuyer.   Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.

Date of acquisition.   The date of acquisition is the date that:
    You enter into a binding contract to buy the main home for which the distribution is being used, or
    The building or rebuilding of the main home for which the distribution is being used begins.

If you received a distribution to buy, build, or rebuild a first home and the purchase or construction was canceled or delayed, you generally can contribute the amount of the distribution to an IRA within 120 days of the distribution. This contribution is treated as a rollover contribution to the IRA.