A little backstory: I changed jobs in Feb of 2025. I did get an 11k 401k distribution from my old employer. I was going to eventually roll that into the new employers 401k once I qualified for it (which for us is after 6 months of employment). Just a few months after starting the job I ended up getting into a bad motorcycle accident. It was so bad that I spent a month in the hospital learning how to walk, do things with 1 arm and get out of bed again. I broke my neck, back all but 2 ribs on left side and partially lost use of left arm due to severe nerve damage.
I ended up using the 401k distribution that was still sitting is savings to pay for the over $7200 in medical bills (combinations of co-pays, pharmacy and deductibles).
When I started doing my taxes this year, I realized that I am still on the hook for the 10% penalty (the taxable portion was already paid during the distribution). I noticed there is an option to avoid the penalty if I used it for medical, which wouldn't get rid of all the penalty but most of it. I have proof of bills with a stack of EOB forms showing the bills, and since I really cant truly itemize vs the standard deduction for married filing jointly I thought this would be my only option.
Here's the question- Can I claim the 401k withdrawal as medical related to offset the penalty associated with it, even though that wasn't originally its intended purpose? The medical debt was incurred months after the 401k distribution and was eventually used to pay medical bills until max out of pocket kicked in.
Posted by Mr-03GSXR-1k