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9 Answers

401 K withdrawal will affect my tax refund?

Asked by: jmlcpl 1190 views YA Discussion

I left my job about 6 months ago and my new job doesn’t have 401 K plan so the money I saved its been sitting on the account for all this time. I’m thinking about taking the money out and close the account knowing there will be penalties and will only get half of the money but will this affect my income tax refund? Or what other penalties come with it? Thanks in advice

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9 Answers



  1. Hugh Jassle on Oct 10, 2012 Reply

    In addition to whatever capital gains, income, and/or dividend taxes you will pay, there is an additional 10% penalty for early withdrawal.

    You can transfer it into a traditional IRA without incurring the penalty, which is what I would suggest unless you have an emergency need for the cash.

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  2. falsi fiable on Oct 10, 2012 Reply

    The two are unrelated.
    You will owe a 10% early withdrawal penalty and the amount withdrawn is treated as ordinary income for tax purposes.

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  3. Silly Goose on Oct 10, 2012 Reply

    Why not roll it over? It’s easy.
    You call a discount broker and open an IRA roll over account.
    Schwab, Fidelity, Vanguard, ING, TRowe Price, etc.
    Yes, if you take the money out, you will pay regular taxes and a 10% penalty.
    It will affect your tax refund.

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  4. Gary D on Oct 10, 2012 Reply

    When you do an early withdrawal, they will typically take out about 20% for the IRS before they even issue you a check. When April 15th comes around next year, you will ALSO owe an additional 10% more tax on the amount that you withdrew before retirement age.

    .

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  5. Bobbie on Oct 10, 2012 Reply

    10% early withdrawal penalty plus the federal income tax at your marginal tax rate during the 2013 tax filing season when you do receive the amount during the 2012 tax year.
    To prevent the above and IF you do not need the amount at all for your own use you could talk to the trustee of the 401K account and ask about DIRECT TRUSTEE to TRUSTEE transfer of the amount that you do have in the 401K plan at this time and IF the plan will allow this to be done and IF you want to choose to do it this way you could open your own TRADITIONAL IRA account for this purpose and then tell the TRUSTEe of the IRA account what and how you will be getting this DIRECT transfer done between both TRUSTEES for this purpose and time in your life.
    Hope that you find the above enclosed information useful. 10/09/2012

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  6. Spock (rhp) on Oct 10, 2012 Reply

    rollover to an IRA is without tax — set this up with the IRA custodian in advance and have the funds or securities sent directly to them so that 20% withholding is not triggered.

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  7. Max Hoopla on Oct 10, 2012 Reply

    Roll it into another retirement account tax free. Do a trustee to trustee transfer and never leave your own fingerprints on the money.

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  8. tro on Oct 10, 2012 Reply

    roll it over to an IRA, let the institutions do it for you and there will be no question that you had receipt of the money(a rollover has to be done within in 60 days to be effective)
    and yes depending on how much the amount is it will increase your gross income, and there will be a 10% penalty

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  9. StephenWeinstein on Oct 10, 2012 Reply

    Yes, it affects your refund.

    When you take out the money, you initially get 80%, but not to keep.

    The rest of the tax and penalties gets taken out of your refund. If your refund is not enough, then you have to send the rest of the tax and penalties to the government yourself.

    You probably will get to keep more than “half”. The penalty is 10% and the tax is usually 10-35%. That makes the total that the government gets 20-45% (20% off the top, when you get only 80%, and then another 0-25% taken out of your refund).

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