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I have had 14 hand surgeries, one each on my elbow, shoulder and hip. I had 2 knee surgeries and my right knee needs replacement. If the temperature is below 40 degrees, my hands go numb and I can’t use them. I have severe arthritis in both hips and both shoulders. My employer gave me a “ light duty “ job watching someone all day (Jan to May 2018) but it wasn't a permanent job. I haven’t worked light duty since May 10, 2018. The doctor says that I can’t weld anymore. I have been welding for 36 years and it’s all I know how to do (30 years with current employer).

The lawyer says I need to apply for SSD. I took $18,000 from my 401k to pay medical and household bills. Will I have to pay tax on it if I don’t/can’t return to work until 2019 or never?

mhoran_psprep
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Wolfiebonbon
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1 Answers1

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Anytime you take money from a 401K, that is not a Roth, you will have to pay taxes on that money. So the answer is yes, you will have to pay taxes. However, what you need to worry about is if you owe a penalty on the money withdrawn. Were you under the age of 59 1/2? If so, you may owe a 10% penalty.

When did you take the money out? If it is before May 2018, then I think you will owe the penalty as well. If after, you need to file IRS Form 5329 and that should include proof from your doctor, to ask for the exemption from the penalty. Note: none of this paragraph applies if you are over 59 1/2.

Now owing tax on the amount withdrawn should not make you panic. After all, your income is probably much lower this year (since you only worked part of the year), and in the end you may be exempt from taxes. Heck you may even get a sizable refund due to the earned income credit (depending on your situation).

This is a scary and frustrating time. Just work though this the best you can.

Pete B.
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