How much will i pay in taxes on my 401k plan total account balance when i reach 59 and half years old ??

Question

i know that for early withdrawals i'll pay 20% fed. tax and up to 10% in penatlies, plus any applicable stae and local taxes.

but how much will i pay when i reach 59 and half years or older and wanna get my money out of the plan ???

Answer 1

Actually, you will not pay 20% federal tax for pre 59 1/2 401(k) withdrawals. That is just a mandatory withholding amount required when you make early withdrawals from an employer-sponsored plan. Your actual federal tax rate will depend on your ordinary income tax bracket, which is more commonly 25% -28% for middle income Americans. PLUS you will pay an additional 10% penalty AND state income taxes. In short, it is not a savings plan and specifically for long-term, retirement accumulations. If you use it for other purposes, you will lose 40-50% in taxes.
However, upon retirement you will pay only ordinary income taxes, without the penalty very much like you do with your current paycheck. The 401(k) is designed to replace that paycheck when you are too old to work. If used properly, it is the best tax-sheltered accumulation plan out there, especially if you have employer-matching contributions. Suppose you contibute 6% of your salary, and your employer matches you dollar for dollar on the first 3%. That's equivalent to getting a 50% return on your money, and you haven't even invested the funds yet. In addition, your contributions are pre-tax, your earnings are tax-deferred, employer contributions are not taxed....you earn triple compounding. Interest on interest, interest on principal and interest on taxes. It's the absolute best way for you to accumulate wealth for retirement.
Furthermore, what matters when you retire is how much capital you accumulate. Within a 401(k) you can accumulate far more because of the tax savings. The more capital you have, the greater your income will be. And, sure, your income will be taxed....but so too will it be taxed if you invested it outside a 401(k). You'll just have a lot less capital to work with.
Be smart. Max out your 401(k)!

Answer 2

If you take the typical (and recommended) distributions, you won't pay tax on the whole 401k total, just the distributions for that particular year. And that of course depends on how much the distribution is and your other financial income that year.

Answer 3

Withdrawals will be taxed as ordinary income, so the rate will depend on how much you take out and on what other income you have.