Is there any way to lower my tax obligation due to the death of my husband and utlizing his 401k to pay off our house?

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    If your husband died in 2012, you can continue to file a joint return with him for 2012 using the Married Filing Jointly filing status.  You will need the approval of his Personal Representative to do this if that is not you.

    The 401(k) distribution will be subject to the regular income tax but should not be subject to any early withdrawal penalty.  Just be sure the code in Box 7 of the Form 1099-R is "4".  The fact that you used the distribution to pay off your home has no tax benefit or detriment.
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      There is no 10% penalty upon the plan owner's death,  but the distirbution is still taxable.
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