taxes and penalties when cashing out retirement fund at the age of 54 years old?

Answer 1

google more info but i think its 12% or less

Answer 2

The distribution is taxed as ordinary income and is subject to a mandatory 20% withholding.

If you are under age 59 1/2 there is generally an additional 10% penalty. There are some exceptions to the penalty but exactly what they are depends upon the type of retirement fund.

Answer 3

I'd like to stress that the amount withheld is WITHHOLDING, not tax. The 20% withheld is 10% for the penalty and 10% for taxes and rarely does it actually cover the tax bill.

At the end of the year, any money cashed out of a retirement plan is income on top of any other income you've had. If this pushes you into the 15% tax bracket, you will owe another 5% in tax. If it pushes you into the 25% tax bracket, it can cost you another 15% in tax.

Answer 4

The withholding on the distribution is 20%. You report the distribution on your tax return and pay income taxes on it at your marginal rate and then you take credit for the 20% that was withheld. The distribution is also subject to premature distribution tax of 10% on your federal return. If you are a California resident, there is a 2.5% premature distribution penalty. Other states may have similar penalties. Check your state.

If you can wait until you are age 55 and you retire then, there would be no penalty on taking a distirbution from your qualified plan. Distributions from qualified plans (but not IRAs or SEPs) made to an employee after separation from service after attainment of age 55 are not subject to the penalty. There are also other exceptions from the penalty such as death, disability and to pay medical expenses.

Jim Kirby, CPA