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plan administrator gave us wrong 401k plan information after we put a deposit on a home.......instead of us losing our 11k on home deposit we took a hardship payout on our home because we couldn't afford to lose our deposit.....now because of that bad advice we owe the IRS.....is there anything we can do to lessen our penalty because wrong financial information the plan administrator gave us............HELP.....
plan administrator gave us wrong 401k plan information after we put a deposit on a home.......instead of us losing our 11k on home deposit we took a hardship payout on our home because we couldn't afford to lose our deposit.....now because of that bad advice we owe the IRS.....is there anything we can do to lessen our penalty because wrong financial information the plan administrator gave us............HELP.....
Talk to the IRS but be prepared to pay what they say you owe. The bad advice you were given and your choice to follow it is no concern of the IRS (that is how they see it).
plan administrator gave us wrong 401k plan information after we put a deposit on a home.......instead of us losing our 11k on home deposit we took a hardship payout on our home because we couldn't afford to lose our deposit.....now because of that bad advice we owe the IRS.....is there anything we can do to lessen our penalty because wrong financial information the plan administrator gave us............HELP.....
For this and any future tax questions, talk to a CPA.
plan administrator gave us wrong 401k plan information after we put a deposit on a home.......instead of us losing our 11k on home deposit we took a hardship payout on our home because we couldn't afford to lose our deposit.....now because of that bad advice we owe the IRS.....is there anything we can do to lessen our penalty because wrong financial information the plan administrator gave us............HELP.....
Details are a little vague. Personally I took out a hardship on my 401k to put a down payment on my first house. You can take up to 10k hardship from your 401k, without penalties to put a down payment on your first house. I took 20k. There was a 10% penalty on the other 10k, so I paid 1k right at the start. I have 19k left now. Now all that money is counted as Income. So if you make 35k a year (which what I was earning at the time), you now have a 55k income for that year, you pay taxes on that amount. I think out of 20k I withdrawed, I ended up with 14k after taxes and penalties. (6k in taxes).
As for bad advise from the plans administrator, the answer is no. Your responsible for knowing the tax law, and if not, get advise. Now if you hired an accountant to provide legal advise and they gave you incorrect information, I would think you would have legal recourse. They have to have liability insurance after all. If you didn't pay the plan administrator for tax advise, you can hardly sue him for steering you wrong.
The main issues are how much you took out of your 401k and how it was coded.
As TechGromit said, you can only take 10k to put towards a down payment on your house - the amount over 10k would be a withdrawal subject to the 10% penalty. The entire amount is treated as ordinary income and is taxable.
If the withdrawal was not coded properly, you should get that fixed with your 401k administrator so that you only need to pay the 10% penalty on the amount in excess of 10k. If there are other issues such you did not realize you would have to pay any penalty or consider it taxable income, you do not have any recourse with the IRS.
As TechGromit said, you can only take 10k to put towards a down payment on your house - the amount over 10k would be a withdrawal subject to the 10% penalty.
I believe this only really applies the the purchase of a first house, not second. Also it really only saves you 1 thousand dollars in taxes, not exactly a lot.
No its not a lot. If the 401k administrator told him he could take money out of his 401k for a down payment and he took 30-40k not understanding the rules he is going to have a big tax bill. We'll have to see what he says.
My wife will be taking $35,000 out as a loan against her 401k for our 1st home purchase. She invested the money tax-free, it grew about 30% tax-free, and I believe we'll use the money tax-free. However, we have to repay the loan over 5 years plus an extra 4.25% interest will be paid to ourselves. The repayment money comes directly out of her paycheck, but it is after-tax dollars. The tax-free money loaned and after-tax money repaid will sort of wash each other out, and the 4.25% will be double-taxed; it is after-tax money that will be taxed again when she retires and takes distributions. As I see it, the loan has huge advantages as oppose to an early withdraw for us.
you can even do a payment plan if you are to be pressed for money, not always the best choice but, still, a choice. Some may say are you crazy but, I will tell you....You are the only one that knows what you can realistically do....so, that's what you do., IRS will work with you, don't be nobodys' sucker.
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