is there any way to not pay 20% in taxes when you have early withdrawl of profit sharing & 401k?

Question

i have quit my job after 16 years. is there any way to save some of my money that is going to a 10% penalty and 20% taxes from my profit sharing and 401k

Answer 1

You can use 401k funds for purchasing a home or for extreme medical emergencies and avoid paying penalties .. but it still counts as income for tax purposes .. so be careful! You may also be able to roll these funds into another type of account, but I'd check with a financial advisor on that. In theory, 401k money is before-tax and therefore it is always taxed at the back-end, even when you are retirement age. Unless you are getting matching funds from an employer, a better choice is a Roth IRA. Though you don't realize the tax savings at the front end, you don't pay any when it comes time to withdraw it out. Depending on your age this may be a better choice for people under 40 (and you can contribute up to $4000 a year to a Roth). Just some things to think about.

Answer 2

Do not have the company make a check directly to you. Open a money market account and have the bank contact your company with the info needed to transfer your 401K into that "IRA" money market account. No penalties, no taxes.
If you need some of the money, you will be taxed and penalized only on the amount you take out.

Answer 3

Unsure of what you mean by early withdrawal of profit sharing. If you're under 55, the only way to avoid taxes is to roll over your IRA. Short of that, its regular income plus a penalty. I'd suggest you see a tax specialist.

Answer 4

depends on how much other income you have you report all your income including the 401(K) distribution and when you have arrived at the taxable income after subtractions, that is the amount you pay the 401(K) is not taxed individually prior to age 59 1/2 there is a 10 penalty regardless of how much income tax

Answer 5

You can use up to 10k for a first time home purchase, but you still pay taxes.