On 11/2010. I withdrew 15,000.00 from my 401k to put down on a primary residence(first time homebuyer). My understanding is that IRS has certain tax rule exemption on Hardship withdrawl up to 10,000.00. Does anybody know the rule to the exemption early withdrawl from a 401k? if so, what is the IRS form that I need to fill out, what is the CA-FTB form that I need to Fill out? what I'm finding out that rule only applies to early withdraw from IRA accounts.
My preliminary review of this subject indicated that there are two types of hardship withdrawals permitted from 401(k) plans. One is called a financial hardship withdrawal. It is subject to applicable income taxes and a 10% early withdrawal penalty if you are younger than 59 1/2 such as to buy a primary residence. The other is a penalty-free withdrawal made under Section 72(t) of the Internal Revenue Code. With this, you pay applicable income taxes but not an early withdrawal penalty.
See form 5329 instructions which make an exception for only IRAs.
Because this is a difficult question to anwer without doing extensive reseach you should contact your plan administrator. Otherwise please contact a tax professional to do the reseach.
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Although the above response is believed to be accurate, it should not be relied upon as any type of legal advice because the information provided is incomplete. It is intended to educate the reader and a more definite answer should be based on a consultation with a lawyer. No attorney client relation is formed with me without a written contract.
Good Luck starts with a strategy and a plan.
Robert J. Suhajda, MS,CPA
17721 Norwalk Blvd. #43
Artesia, CA 90701
Tax Relief Lawyer. Former financial auditor and controller. Admitted to US Tax Court, Income Tax, IRS representation, Fiduciary income tax returns, Estate and Gift tax returns, Homeowner Association Strategist.
As a strategist, I analyze and integrate the operations, reserve study, budget, and financial statements into a unitary plan for 1 – 5 years, utilizing my experience as
a former treasurer and vice president of a homeowners' association and corporate
controller and auditor, to minimize homeowner association dues.
The code allows you to take up to $10,000 from your IRA for a first time home purchase before you are age 59 1/2. However, this does not extend to 401(k) plans. You could have transferred $10,000 from your 401(k) to and IRA and then withdrew the $10,000 from the IRA for the home purchase. You can possibly treat the distribution from the 401(k) as a plan loan. There may be other options depending on your plan agreement. To be sure you should check with your plan administrator or a pension attorney.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.