I have $18K in my 401K, considering cashing out to pay credit card debt of $18K. My income for the end of year is under $15K however I am married and file joint. Will i be taxed? I know the penalty will apply. Is it any different if I file Married filing seperate? Thx!!
2007-12-09 20:17:33 · 2 answers · asked by lmarks42 1 in Business & Finance ➔ Taxes ➔ United States
It's taxed as ordinary income plus the 10% penalty regardless of your filing status. Also, the distribution itself is subject to withholding at 20% so you won't get the full $18,000 if you cash it out..
Also, if you are still working for the company that sponsors your 401(k) you won't be able to take an in-service distribution for that purpose in most cases. You'd have to quit your job to cash out the 401(k).
2007-12-09 22:30:59 · answer #1 · answered by Bostonian In MO 7 · 2⤊ 0⤋
If your joint income is under $15K for the year you wouldn't owe any income tax on a joint return. But remember that the withdrawal from your pension is income, so if it's not included in the $15K you mention, you have to add it in, and if it was over a couple thousand dollars, you'll owe some income tax in addition to the 10% penalty for early withdrawal. If you have around $15K income aside from the withdrawal, and cash out $18K, your income for the year is $33K and yes, you'll owe tax.
If you file separately, you're almost sure to owe tax, and more than you'd owe on a joint return.
2007-12-10 12:59:51 · answer #2 · answered by Judy 7 · 0⤊ 0⤋