What's the tax rate on getting your 401k early?

Question

I need to find out for someone so I thought I'd ask here first. Would anyone happen to know what the tax rate is on your 401k when you get it early? Thanks.

Thanks everyone! You answered my question. I appreciate it.

Answer 1

The 20% withholding is NOT the same as the tax! What you pay is at your standard tax rate PLUS a 10% tax penalty (note: not 10% of the tax, 10% of your withdrawal automatically goes to the government as a penalty). Thus, if you have $10,000 in a 401(k) but withdraw it early, you get $7,000 ($2,000 withholding plus $1,000 penalty). However, suppose that you are in the 10% tax bracket, then you would get $1,000 back when you file your taxes (10% marginal tax + 10% penalty = 20% total tax). If you are in the 25% tax bracket, you would have to cough up an; ADDITIONAL $500 when you file your taxes (25% tax + 10% penalty=35% total tax). Note that there are (some) legitimate ways to avoid the penalty (hardship withdrawal [which has been ok'ed by the IRS], taking the money and within 90 days putting it into another 401(k), etc.). In any case, you probably will be paying the penalties and interest and will have to claim the refund back on your taxes. A better way is to borrow against the funds in your 401(k) instead (some plans allow you to do that) of taking the money out as a withdrawal.

Answer 2

You use the income tax bracket for your filing status your are either 15,25,28,33 or 35 add your state rate look at

http://www.irs.gov/formspubs/article/0,,id=150856,00.html

(I know its the IRS website but it is an extremely helpful one)

Then add +10% if you are younger than 59 1/2

Also always feel free to call your 401k provider and ask they will give each scenario over the phone.

If you are over 35 and you do not need all your money at once look at opening a personal IRA and doing a rule of 72 distribution no penalty tax.

Email me if you want further details on rule of 72

Answer 3

30% will be withheld. 10% is a penalty that you will never see again. The other 20% is just like the income tax withholding on your paycheck.

The money you withdraw is taxed at your marginal income tax rate for that year (i.e. whatever bracket you're in). If you're in a bracket under 20% you'll get a refund.

Answer 4

I'm pretty sure they will tax you 20% of what the 401K is worth. so say you have 20,000 in your 401K they will take 4000 out for taxes. there is always a penalty for early withdraw

Answer 5

20% withheld by investment company, 10% penalty paid to IRS on before tax withdrawal, final tax rate depends on which tax bracket you fall into at the end of the year.

Answer 6

Yup, you pay big time. They take 20% either at the time you pull it out, or at the time you file. Then there is another 10% you must pay as a penalty when you file your tax at the end of the year. It's a lot of money.

Answer 7

im not sure exactly but when my husband had to take his because he had no choice. he had 15,000 dollars saved and only recieved 9,000 then got taxed at income tax time as if we had another 15,000 dollars income. so be very careful and look at what it will do to your tax bracket placement. it can boost you up into a higher bracket. we had to pay in 1500 dollars that year

Answer 8

I TOOK MINE OUT, A FEW YEARS AGO,
I REMEMBER IT WAS ABOUT 30% WHICH INCLUDED THE PENALTY.
NOT A GOOD IDEA, UNLESS YOU REALLY NEED THE MONEY.
CAN GET IT OUT WITHOUT PAYING A LARGE PENALTY, IF IT IS FOR COLLEGE, YOUR FIRST HOUSE PURCHASE OR HARDSHIP .

Answer 9

I had to pay 40%-It's almost half of your amount you have in there.