2007-08-28 08:53:31 · 8 answers · asked by lmw 1 in Business & Finance ➔ Personal Finance
If you are under the age of 59.5, there is a 10% federal early withdrawal penalty. This is imposed up an above the amount you will pay for federal and state taxes. Some states will also hit you with an early withdrawal penalty.
Another option you could look into would be to take a loan from your 401k. This way, you wouldn't be hit with the penalty and you could pay it back over time through your existing salary reduction.
Hope this helps.
2007-08-28 09:58:25 · answer #1 · answered by dfrank04401 3 · 0⤊ 0⤋
If you do a direct rollover to another company's retirement plan or to an IRA then there is no tax ramification or penalty.
If you close it and have the funds paid directly to you then there will be 20% withheld right off the top for federal taxes. So, the check that you receive will be your current account balance minus 20%. You will then receive a 1099-R tax form the following January. You will have to show the gross amount of the withdrawal on your tax return along with the taxes that were withheld. Depending on your tax bracket you may have to pay additional taxes. Also, depending on your state tax laws you might have to pay state income tax as well. Some states require the tax to be withheld at the time of withdrawal.
If you are under age 59 1/2 you will have to pay an additional 10% excise/penalty tax. This 10% is on the gross amount of the withdrawal, not the gross minus the 20%. The 10% penalty is paid when you file your 1040 tax return in April of the following year.
So, the minimum percentage for closing a 401k is 20%, and 30% if you're under age 59 1/2. This could be higher or lower depending on your individual situation.
2007-08-29 07:38:11 · answer #2 · answered by jefe96us 2 · 0⤊ 0⤋
If you take a distribution from your 401(k) prior to age 59 1/2, and it is not for a qualifying reason, you are typically looking at a 20% penalty, plus income tax on the amount withdrawn.
If you simply want to move the funds to another custodian (for instance, you left your employer and want to move the 401k into another qualified plan) you can rollover the funds into an IRA or other qualified plan with no tax consequences, assuming you meet certain guidelines.
If you simply want to cash out the account and take the money, you will probably have to pay the penalties described above unless you meet the age requirements, in which case you'd only have to pay income tax.
2007-08-28 09:02:11 · answer #3 · answered by jrod57 2 · 1⤊ 0⤋
Plan on about 40% in income taxes and penalties. If you don't have to have the money, roll it over into an IRA and save it all. For more, go to daveramsey.com.
2007-08-28 10:24:52 · answer #4 · answered by starfishltd 5 · 0⤊ 0⤋
If you are younger than 59 you will get hosed, 30% off the top. and if the live in a state that has income tax as well, look out
2007-08-28 09:17:01 · answer #5 · answered by Domino 4 · 0⤊ 0⤋
20% federal and additional 10% if not re invested and what ever your state tax is. Been there, done that
2007-08-28 12:20:50 · answer #6 · answered by Pengy 7 · 0⤊ 0⤋
depends on when u close it out, your age and the balance.
2007-08-28 09:01:09 · answer #7 · answered by Anonymous · 0⤊ 0⤋
jefe gave the closest correct answer!!!
2007-09-01 04:13:49 · answer #8 · answered by Anonymous · 0⤊ 0⤋