2007-02-02 04:00:37 · 4 answers · asked by know 1 in Business & Finance ➔ Taxes ➔ United States
Unless you roll this money into another qualified vehicle (like an IRA) within 60 days - yes you will pay taxes
2007-02-02 04:03:01 · answer #1 · answered by dashel_gabelli 3 · 3⤊ 0⤋
If this just happened and you received the check yesterday, you now have 60 days to roll it over into an IRA to avoid taxes. Since you took a cash distribution, they already deposited 20% for federal tax withholding. So, you're going to also have to come up with THAT portion out of your own pocket. Of course when it comes time to do your taxes you'll have extra withholding and likely will get a refund.
ex: If you had 10k in your 401k. They just sent you a check for 8k (10k less 20% or 2k). In order to avoid taxation altogher you'll have to roll over the entire 10k. If you roll over the 8k that you received, they will tax you on the 2k only. You'll also have to pay 10% on that 2k. No real worries there because you've already withheld far more then the taxes would be.
If this happened more than 60 days ago??? You're out of luck and the entire thing is taxable. Depending on your age you may also be subject to a 10% extra tax that they didn't withhold on.
More important then the taxes is the damage you've done to your retirement. Assuming 8% of interest over 25 years, for every 1k you've taken in cash you just cost yourself 7,000. Depending on the size of your balance, that may be the difference between retiring at age 65 or at age 70.
2007-02-02 12:12:19 · answer #2 · answered by digdowndeepnseattle 6 · 1⤊ 0⤋
Did you receive a full disbursement or did they hold a % for withholding? In some cases, you will get the option to roll that amount over into another qualified plan or an IRA; this is the easier of the two scenarios. It goes from one tax free pocket to another. If you received a check, you will need to deposit that plus any withholding amount into an IRA or equivalent within a specific time frame (30 to 60 days; I can't remember). You will need to show this rollover on your return. If not, then you must claim this amount as income plus pay a 10% penalty for early withdrawl (if you are young than retirement age).
2007-02-02 12:13:41 · answer #3 · answered by kam 5 · 0⤊ 1⤋
LOL, you are so screwed! Should have rolled it over! Taxes owed PLUS penalty unless you are retired.
2007-02-02 12:03:49 · answer #4 · answered by Nylon Freak 1 · 0⤊ 0⤋