what is tax difference between 1) purchase of time with 401K funds or 2) cash? what is best option from tax standpoint? purchase is for time (time spent in military) applied to retirement formula for retirement from State service (increases the monthly pension). Purchase is $60k either way.
Regardless of why you withdraw money from your 401(k), any monies withdrawn are taxable income in the year of withdrawal. Period. If the withdrawal is made before your legal retirement age, then with few exceptions a 10% early withdrawal penalty will also be accessed. The purchase of time for whatever reason is not an exception to the 10% early withdrawal penalty.