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Hardship withdraw from a 401k?

October of 2012 I had to take a hardship withdraw on my 401k to keep current on mortgage due to accident at home in March and not able to work . 20% withholding and 10% penalty for early withdraw. Well understood and glad to have money to offset loss of income for mortgage. Last month I was declared disabled by SSID retroactive to September of 2012. I there any way to get back the penalty money since my hardship withdraw was after the retroactive date of my disability ?

Jun 09, 2013 by frank from Wheatfield, IN in  |  Flag
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5 votes

While this may take some work to resolve, I believe you should be able reverse the penalty portion by amending that year's tax return (2012). That is done on form 1040X. Be ready to back up your assertion with appropriate documentation.

Comment   |  Flag   |  Jun 09, 2013 from Oshkosh, WI

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5 votes

Frank, Presumably if you reported the early withdrawal penalty, attached somewhere to your tax return was a Form 5329 to declare the amount of the penalty.

If you were in fact totally disabled as of the date of distribution, you should be eligible for the penalty exception. You would need to file an amended tax return for 2012 (Form 1040X), including an amended Form 5329, declaring the penalty exception that would apply (see the Form 5329 instructions for Part I, line 2).

Be certain to maintain the letter to substantiate the timing of the disability and that it predated the withdrawal.

Good luck to you!

Comment   |  Flag   |  Jun 09, 2013 from Columbia, MD

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3 votes

Frank, I agree that you should remove the penalty from your return by amending it using form 1040X. Keep in mind that the IRS reviews amended returns. So, I recommend that you attach your supporting documentation to the 1040X to avoid delays in processing. Best of Luck!

Comment   |  Flag   |  Jun 12, 2013 from Marlton, NJ

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