Advice on offsetting 401k penalty

Income Tax: The $30k withdrawal is treated as ordinary income and taxed at your marginal tax rate. For example, if you're in the 22% tax bracket, that's about $6,600 in federal income tax.
Early Withdrawal Penalty: A 10% penalty applies to the $30k withdrawal, which adds $3,000.

Total penalty and tax = $9,600, assuming a 22% tax bracket.

The 30% federal energy tax credit applies to qualified purchases like heat pumps, solar panels, home batteries, and insulated windows.
If you spend $35,000 on eligible improvements ($5k heat pump + $10k battery backup + $20k windows), you could claim 30% of $35,000 = $10,500 as a tax credit.

Tax credits directly reduce your tax bill. In this case, the $10,500 tax credit could offset the $6,600 federal income tax from the 401k withdrawal, potentially bringing your federal tax bill to $0.
However, the 10% early withdrawal penalty is not reduced by tax credits and must still be paid ($3,000 in this example).

Out-of-Pocket Costs: Ensure you have enough funds to cover the upfront costs of these energy-efficient upgrades. Tax credits are applied when you file your taxes, so they won’t help with immediate payments.
Florida State Taxes: Florida doesn’t have state income tax, so no additional tax savings or penalties apply at the state level.
Eligibility: Confirm the improvements qualify under the Residential Clean Energy Credit or the Energy Efficient Home Improvement Credit and keep all receipts and documentation.

If you were already planning these energy-efficient upgrades, taking advantage of the tax credits is a good idea to reduce your tax bill.
However, if the sole motivation is to offset the 401k withdrawal penalty, it’s not the most effective strategy since the penalty remains fixed.

Consider consulting a tax advisor to ensure you maximize the energy tax credits and understand the full impact on your tax situation.