What I will I owe in taxes If cash out my 401k.?

Question

It is about $18,500. Assume a 33%tax bracket. I am lookinf mainly for what I owe after the 10% penalty and whether that counts towards my taxes.

Answer 1

18500 x 33% = $6,105, 10% penalty would be 18500 x 10% = $1,850. taxes would be 7,955, which would leave you with net of $10,545. No, the 10% penalty doesn't count towards your taxes, it's in addition to the taxes (33% in your case). The other question I have is why are you cashing in the 401K? The reason I'm asking it is that there are certain reasons that you can get the 10% penalty waived. Also, does the 33% tax bracket include state taxes on the cashing in of the 401K? I'm guessing that it doesn't, which means that you'd have to take into account state taxes on the 401K withdrawal which would further reduce the net you'd end up with from the 401K.

Answer 2

Let's get one thing straight: Federal tax is NOT withheld from 401k distributions based on tax brackets!

Regardless of what tax bracket you're in, 20% will be withheld for federal taxes and an additional 10% will be withheld for a penalty if you're not yet age 59 1/2.

State income taxes will also be withheld if you live in AR, CA, DE, IA, KS, MA, MD, ME, NC, NE, OK, OR, VA, or VT. Otherwise no state income taxes will be withheld at the time of payment.

But... When you file your taxes, you need to include the $18,500 as part of your taxable income. If the federal and state taxes that were withheld at the time of payment aren't enough, you'll owe additional taxes at that time.

So... Let's assume you don't live in one of the states listed above. In that case, you would receive a check for $12,950. The rest would be withheld for taxes and the penalty, if any.

Answer 3

If your 401K is $18,500 and your federal bracket is 33%:

$6105 federal tax
$1850 penalty
$7955 total to IRS

This leaves $10545 for you and for state income taxes.
After subtracting an unknown amount for state income taxes, this leaves roughly 1/2 of the original $18,500 for you.

The state income taxes are deductible only if you itemize and do not deduct sales tax.

The 10% penalty is never deductible.

Answer 4

In the 33% bracket you would pay 43% including the penalty. Tax is before the penalty. There can also be bank penalties if the money is in CDs that are closed early.

It would be stupid to cash it out. Roll it over into an IRA. If you need money borrow it. It would probably cost less.

Answer 5

I dont know what the taxes will be,but I do know your better off borrowing from it.your getting a loan from your money and the interest thats charged goes back into your 401.Ive been doing this for a few years to pay some bills.I took a hardship on mine several years ago,had the 10% taken out but not the taxes,2 years later irs sent a letter about the taxes.they will work with you on a payment plan.

Answer 6

At 33%, your income tax on the amount would be a about $6105, plus $1850 for early withdrawal penalty, for total tax of $7955. And no, that's all federal income tax so none of it is tax-deductible.

There might be additional tax due at state level, depending on where you live. If there is, and you pay it, and itemize your federal taxes, then the amount of state tax paid IS an eligible itemized deduction on your federal return.

Answer 7

Unless you really HAVE TO I suggest leaving it alone.

If you really DO, then be sure and know that when you do so you will be given the option by whichever company is holding it to take the taxes out NOW at the time that you withdraw it.

Do yourself a favor though whatever the cost, let them take it out now at the time you withdraw because later on down the line when you don't have the money you will definitely OWE uncle Sam.

..........good luck.............

Answer 8

Same taxes you would pay if you earned $18,500 (The 33%)

$6105.00

Answer 9

if you just have them take it out of ure withdrawal than thats 33% if you do it later around tax time its the same but if you dont get a good return then you'll owe it. its better for them to just take it now when you withdraw. i did this twice both ways.

Answer 10

i know you could give me some of it and you won't have to pay as much tax i need money more than the tax man
lol