Dear Dr. Don,
I recently had to take $4,800 from my 401(k) retirement account. It was a hardship withdrawal. I paid 10 percent tax on it right away. I understand that I could be taxed an additional 10 percent for an early withdrawal made before age 59½. I am hoping that I won’t have to pay income taxes when it comes time.

I make $43,000 annually for my full-time job. I do independent contract work that amounts to about $5,100 annually and have a part-time job that pays about $1,100 annually. I am single, so I claim no one on my taxes. I’m not sure if you can tell me anything. I am trying to prepare if I do have to pay taxes on the withdrawal.
— DL Taxes

Dear DL,
The contributions to a 401(k) are tax-deferred. When the money comes out, you owe income taxes on the distribution. The amount you owe depends on your total taxable income in that tax year. From reading your letter, it doesn’t sound like you’ve suffered a loss in income, so the distribution adds to your income for the year.

Don’t forget your state, and any local, income taxes when determining the tax burden associated with the hardship withdrawal.

For a hardship withdrawal subject to the 10 percent penalty, the penalty is over and above the income taxes due on the distribution. The Bankrate feature, “Need cash? There’s your 401(k) …“discusses hardship withdrawals in greater depth.

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