If I cash out part of a 401K account will I be subject to the penalty and federal tax withholding?

Question

Will I avoid the penalty tax and just pay the federal/state taxes on the portion that was cashed out?

Answer 1

oh yeah. There are some big time cost for cashing out a retirement account. First you get to pay all the back dated federal income tax, and state tax. Then you get slammed with a 10% penalty. So, for cashing out, let say 25k. You would lucky to keep 15k of it.
Also, individual companies have different policies for 401k withdrawl, some will not even allow unless you are no longer an employee.

Answer 2

You'll pay federal and state taxes plus a 10% penalty if you are under 59 1/2.

Answer 3

If you are 59 1/2 & over, no penalty. 10% penalty if under. You will owe federal/state taxes . You probably can request a percentage of the withdrawn amount to be witheld. But why get it withheld, just set aside the amount and pay at tax time.

Answer 4

Unless you're 59 1/2, or have taken early retirement, or are taking a hardship withdrawal (for medical expenses, a house downpayment, etc.), then you have to pay the 10% penalty in addition to ordinary income taxes.

You can avoid this by taking a loan from your 401(k), but even that should be avoided if at all possible.

Answer 5

If you're under 59-1/2, you'll pay the 10% penalty on the amount you withdraw. In any case, you'll pay regular income tax on the withdrawal.

Answer 6

Yes, you will have to pay federal taxes (typically at a higher rate than your normal bracket), and there is usually some type of penalty for early withdrawl as well.

Answer 7

10% right away and additional 20% tax time...pretty stiff unless your 59 1/2...

Answer 8

See www.401k.org for info on early withdrawals.