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But there are a couple of scenarios where I want to notify seach engines the page is not found "404" but I then want to redirect the visitor to a category page.
Is this ok to do? or bad for SEO? or just plain bad?
You can't send a 301 redirect after sending "404" in the header. That's not possible. The HTTP transaction is finished when the 404 is sent. Send just one or the other of the codes.
Just provide the right error message and supporting internal navigation right there on the 404 error page and let the visitor click one.