When I withdraw early from 401k, when does the 20% fed tax have to be paid, then or when I file for that year?

Question

I'm losing my job due to outsourcing to MEXICO, and I need the money so I'm going to take the early withdrawl. I know there is also a 10% penalty fee.

Answer 1

The withholding information in the other answers is fine. If you are taking the distribution in 2008, you may ask that additional withholding be taken from the distribution, rather than the 10% requirement. If you do not have sufficient withholding taken from the distribution, and you are going to owe over $1,000 tax, then you should send in an estimated tax payment (forms available at irs.gov) to cover the shortfall.

To minimize the tax on the distribution, since it is already the end of November, consider taking the withdrawal over two years, or if you have considerable income in 2007, take the withdrawal in 2008.

Next, if you are receiving unemployment, and are paying COBRA health insurance, then you may reduce the penalty on part of your distribution. You may also reduce the penalty if you have substantial medical expenses. So keep the insurance and medical records.

If you are over age 55 have your situation reviewed by a tax professional to see if you can escape some or all of the penalty.

Answer 2

When you take the money, the company will withhold 20% towards your tax bill and give you the rest.

You will list the income, penalty (if any) and withholding on your tax return for the year. Unfortunately, the 10% withheld for income tax is usually not enough. If you have other income during the year, you may find you are in the 15 or 25% tax bracket and the 10% will cause you to owe another 5-15%.

Answer 3

They'll withhold the 20% when you take it out. If you owe more than that, you'll pay it with your tax return. If you end up owing over $1000 at tax time, you'll pay a penalty for underwithholding, so should make an estimated payment by 1/15/08 to get the total under $1000.

Answer 4

The distribution from the 401(ok) is taxed as consumer-friendly earnings. on account which you're below age fifty 9 a million/2, there is one extra 10% penalty on magnificent of that. in case you're incomes $36k this 12 months and are single, the 20% withholding from the distribution will probable no longer be adequate to conceal the entire tax and penalty on the distribution. you will maximum probable be in a fifteen% tax bracket so the tax on the distro would be $319.sixty 5 plus the ten% penalty of $213.10 for an entire due of $532.seventy 5. The $426.20 withheld from the distro is obviously no longer adequate to conceal the entire due. in case you're like maximum taxpayers you have way too lots withheld out of your standard wages besides so it is going to probable no longer consequence in a tax bill once you record; your refund will only be $106.fifty 5 smaller than it in any different case could be. in case you're rather in a pinch it would make extra sense to withdraw basically adequate to tide you over on your first paycheck and do a rollover to an IRA on the stability. which will cut back the tax and penalty and guard as lots of the tax deferred prestige as obtainable. Even extra suitable, roll it over to a Roth IRA. you will pay tax on the entire quantity, plus 10% on the quantity which you do no longer roll over, however the payout once you retire would be completely tax loose. you're youthful adequate now that the stability on that must be 1000's at retirement time whether you in no way make contributions a dime to it for the remainder of your working lifetime.

Answer 5

20% is witheld when you make the distribution and your penalty is assessed at tax time.