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We took out a hardship distribution from a 401k for home down payment. There is leftover funds that were not applied as down payment. What do we need to do with the funds

 
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Level 15

We took out a hardship distribution from a 401k for home down payment. There is leftover funds that were not applied as down payment. What do we need to do with the funds

What you do with the excess funds is your choice.  There is no requirement for you to do anything with the funds received from the withdrawal from the 401(k) account.

For a withdrawal from a 401(k) account in 2019 you will receive a Form 1099-R from the plan administrator in January 2020.  The Form 1099-R is reported on your federal tax return.  The taxable amount of the withdrawal is entered on your tax return as ordinary income and taxed at your current tax rate.

If you do not have an exception to the early withdrawal penalty there will the a 10% penalty on the amount withdrawn assessed and entered on your federal tax return.

IRS Tax Topic Additional Tax on Early Distributions from Retirement Plans Other than IRAs - https://www.irs.gov/taxtopics/tc558

Level 15

We took out a hardship distribution from a 401k for home down payment. There is leftover funds that were not applied as down payment. What do we need to do with the funds

Taking money out of a 401K for a down payment on a house is not an exception to the 10% early withdrawal penalty, so if you are under 59 1/2 you will be paying that 10% early withdrawal penalty and ordinary income tax on the money you took out.  Taking money out of a 401k to make a down payment is not the same as taking it out of a traditional IRA.  If you take up to $10,000 from an IRA you do not have an early withdrawal penalty, although you do pay income tax on the distribution.  That is not the case with taking it from a 401k.

In January/early February you will get a 1099R which must be entered on your tax return.

Level 15

We took out a hardship distribution from a 401k for home down payment. There is leftover funds that were not applied as down payment. What do we need to do with the funds

The only thing you are not permitted to do is roll the money over to put it back into a retirement account and be able to continue to defer taxes on this money.