Is there a tax on money from your K-stock fund if you withdraw it early.?

Question

I know you are taxed alot to use your 401-k early, but if you leave your company to go elsewhere and draw your Kstock out ,How much are you taxed??

Answer 1

You can count on losing 20 percent for taxes and 10 percent penalty. Your best bet is to roll it over into another retirement fund and save it for when you do retire.

Answer 2

Early distribution (before you reach the age of 59 1/2) is subject to additional 10% tax and the distribution will be added to your gross income and taxed at your tax bracket.

IRS does allow some exceptions to the 10% additional tax. For example:
If your reason for withdraw is for medical expenses, amount of 7.5% of your adjusted gross income (line 37 of 1040) wouldn't be subject to the additional 10%.

Using the distribution to purchase your FIRST home.

If you leave your company, you should open either a Traditional IRA or a Roth IRA account and roll over your 401k rather than withdraw.

You can open either types of IRA account with almost any brokerage firms and banks.
Then initiate a custodian to custodian transfer.

For a detail explanation about the different types of IRAs, consult IRS Publication 590, http://www.irs.gov/publications/p590/index.html.

For more detail about taxation on early retirement saving distribution (in your case 401k), consult IRS Publication 17 page 120, http://www.irs.gov/publications/p17/index.html.

Unless you really need the money, I strongly suggest that you open an IRA and roll over your savings.

Best wishes.

Answer 3

You will normally be required to pay the tax as if this was a part of your ordinary income plus you will be assessed a penalty of 10% of the early distribution amount, if you have not reached 59 1/2 years of age at the time of the distribution. There are a number of exceptions to the penalty which are discussed on page 74 of Publication 17 which I have linked below.

http://www.irs.gov/pub/irs-pdf/p17.pdf

Answer 4

I have no idea what K-stock is, but if it was in the 401K or another tax deferred retirement plan, it would be a taxable withdraw. If you are referring to an employee stock ownership plan that allows you to have money deducted from your check to buy your employers stock, these are usually after tax investments. ESOPs are treated the same as if you bought the stock though a separate brokerage account.