My employer is no longer offering a 401k. What happens if I cash out the 401k and don't roll it over?

Question

I just want to know if what the penalties are, do they withhold anything, and when do you have to pay the penalty? What amount are you taxed on? Suppose the amount in the 401k is $10,000. Any help is greatly appreciated!!

I have other means for retirement, so I'm not worried about taking this money out. The government will get any money I have eventually anyway. When paying the income tax, do they figure it on the full amount of the money that was in the account or do they figure it on the amount left after they take 20% and then 10% penalty?

Answer 1

First, you would pay a 10% early withdrawal fee. Then, you would pay ordinary income tax. If you're in the 25% tax bracket, you'd pay around $2500. That's 35% of your savings gone right there. You are far better off rolling it over into a traditional or Roth IRA.

Answer 2

If you are under 59 1/2 years old you will have a 10% early withdrawal penalty which would most often be taken before the check is even written. From there, you would have to pay taxes on the remaining $9,000 at your income tax rate. So that's $2500 or so gone.

Your 401K money was put away for your future retirement. Moving the money to an IRA continues to accomplish the financial goal you set out for yourself in opening the 401K in the first place - a secure retirement.

Answer 3

They will probably withhold 20% to send the IRS for taxes. This number is take directly from the Internal Revenue code and there is no option to increase or decrease the amount. This amount is also guaranteed NOT to be the actual taxes owed. The FULL amount are the withdraw (including the withholding) must be included as income on your tax return, it is subject to regular income tax at the same rate as if you had earned that amount during the year. If your age is less than 59 1/2 at the time of the withdraw, there is also a 10% 'early withdraw' penalty.

Answer 4

Assuming it's the $10,000. They will cut you a check for $8,000 and send the other $2,000 to the IRS for withholding. Then at thebeginning of next year (January) you will receive a 1099-R. This will show the entire $10,000 as taxable income to you. You add that to your regular income (different line on 1040 though). How much you are actually taxed is dependent upon total income and deductions. Then, after you determine your tax you will add another $1,000 in excise taxes (10% of $10,000) to that (again seperate line item on 1040) for early distribution. So, total tax is likely going to be around $3,000. First 2k is paid up front and final 1k is paid on April 15. Depending on your situation you may not have to pay anything. Ex: If you normally get a refund of $1,500, you'd likely break even this year and not get any refund.

Not to mention the fact that the $10,000 would likely grow to $100k by the time you retired. So you pay money to govt AND you destroy your retirement. Roll it over---do not take this distribution.

Answer 5

With $10,000 in the account, the financial institution where the 401(k) is at, would most likely be able to keep the account for you. Otherwise roll it over. You'll pay too much tax on the withdrawl, and you'll be glad that it was there when you go to retire.

Answer 6

You should really talk to a Financial Advisor! Someone who can help you decide the best way to handle this money for your future. It isn't just about how much you're charged if you cash out, it's about what that money is supposed to do for you and how you can best use it. A Financial Advisor will not only be able to answer your question, but he/she will also be able to present you with more options than anyone here can...there will be a fee, but the peace of mind that a financial plan can bring to your life is beyond words!

Answer 7

based on tax scale it will cost you 40% of your fund for every dollar withdrawn you receive 60 cents!!!

Answer 8

Uncle Sam will take most of it if you don't roll it over. You should roll it over, really.