Client took out $9684 from 401k for a first time home buyer. 1099-R has 1 in the distrib code under 59 1/2.To avoid the 10% penalty, needs to be J. They use 1 or 7?

[jcdtax]

My client withdrew from 401k for first time home buyer, distribution code says 1, in order to avoid the penalty it should be J, company only uses 1 or 7, age dependent. Only override I see is if it should have been a J but from a Roth.  The IRS says specific circumstances, is that just from a Roth? The amount was under the $10,000 specified for the program. 

[PhoebeRoberts · Accepted solution]

The first-time homebuyer exception only applies to IRA distributions, not 401(k) distributions. Your client owes the penalty.

[Just-Lisa-Now-]

Hopefully the client didn't contact you for advice about this before they did it, and you told them they could take the money from a 401k without penalty.....401k withdrawals don't qualify, has to be an IRA.

[jcdtax]

Lol no they didn’t, I wouldn’t advise on something I wasn’t sure of anyway! I was 99.9% sure I did the tax correctly but they got me thinking. I forgot about the 401k vs IRA. That really cleared it up for me!

[Just-Lisa-Now-]

:+1:

[gdentity]

To qualify for the 401k penalty waiver, regarding Financial hardship you can include medical costs