2007-05-30 10:33:13 · 3 answers · asked by dyer4dolphins 1 in Business & Finance ➔ Taxes ➔ United States
Are you taking a distribution, or are you rolling it over into an IRA?
If you are taking a distribution, then you will pay 20% now (employers are required to withhold 20% for federal income on funds that are paid directly to the plan participant), and the balance on your income tax return.
The balance due will depend on what tax bracket you are in. If you're in a low tax bracket, you may get some of the 20% back, if you're in a high tax bracket you could owe more on the 401K distribution.
However, if this distribution is part of a divorce decree then you can roll it into an IRA, and avoid income taxes.
2007-05-30 10:41:48 · answer #1 · answered by Kristine M 2 · 0⤊ 0⤋
If you are receiving a payout from your ex-spouses 401(k) as a result of a divorce, roll it into an IRA. This is treated the same as a rollover if you leave a job. You don't pay any taxes until you take the money out of the IRA. If you take the money out now, you pay a 10% penalty on top of income taxes at your marginal tax rate.
Kristine M is correct about the withholding rate, but that is NEVER the actual tax due.
2007-05-30 21:11:11 · answer #2 · answered by STEVEN F 7 · 0⤊ 0⤋
you'll pay upfront and depending on your tax bracket coudl be 34-45% of the payout.
2007-05-30 17:37:21 · answer #3 · answered by jeramyaupton 2 · 0⤊ 0⤋