If I have a rollover 401k that has decreased in value from $17,000 to $11,000, and I withdraw the balance, how will the capital losses be considered when taxes and penalties are charged?
2006-12-03 00:27:11 · 2 answers · asked by dlkendra 1 in Business & Finance ➔ Taxes ➔ United States
The only time losses are considered is when you contributed post-tax money to the 401(k). People rarely do this because post-tax contributions don't save taxes when contributed like pre-tax contributions do. If you pull out your entire 401(k) and you contributed over $11,000 post-tax, see a tax-preparer or accountant on how to handle it. Otherwise, if all of your contributions were pre-tax, you'll pay through the nose. Do whatever you can to not pull out the money. If you are pulling it out because you are unhappy with the people handling the 401(k), roll it over to an IRA instead.
2006-12-03 05:26:21 · answer #1 · answered by TaxMan 5 · 2⤊ 0⤋
You would be taxed and penalized on the $11,000. The $6000 "loss" has no bearing on the return as it is in a tax deferred account.
My advice is to not cash it out though. Depending on what state you are in, you will lose about half of it to taxes and penalties.
2006-12-03 02:42:27 · answer #2 · answered by Wayne Z 7 · 2⤊ 0⤋