Casner & Edwards

Client Alert: 401(k) Distribution for First-Time Home Purchase Subject to 10% Additional Tax

By: Trusts & Estates

In the case of Soltani-Amadi v. Commissioner (Tax Court Summary Opinion 2019-19), the Tax Court (the Court) has found that an early 401(k) distribution used for a first-time home purchase is subject to the 10% additional tax that is charged to early retirement account distributions. The Court found that the exception to the 10% additional tax for first-time home purchases applies to distributions from IRAs, not other qualified plans such as 401(k) accounts.

In the case, the taxpayer took an early distribution from her 401(k) plan to purchase her first home. She argued that the 10% additional tax penalty should not apply because the distribution was from a retirement plan for a first-time home purchase. She pointed to the portion of the tax code that states that early distributions from “individual retirement plans” which are used for a first-time home purchase are not subject to the 10% additional tax. 

However, the Court found that although a 401(k) plan is a qualified retirement plan, only IRAs are “individual retirement plans" for purposes of the penalty exception, and so the 10% additional tax applied to the early 401(k) distribution.

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