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6 Answers

taxes on 401k withdrawal?

Asked by: Jesica Hogan 2457 views YA Discussion

I know, its not a good idea and you should try to do everything but take a withdrawal from you 401k. I have no other option at this time. This housing market has left me in a bad spot and I need to make a withdrawl from my plan. I need to clear about 15k. I have calculated this would mean I need to take out about 23k. I know there is a 10 percent early withdrawal fee, plus an auto 20% withholding. My question is on the 20 percent. My wife and I will fall under the 25 percent tax bracket. (with or without the 23k). Im assuming at the end of the year, I would need to pay the additional 5% tax on the money since they only kept 20%? Is that how it works? I take it that would be the same as taking the 23k and adding it to our total gross income and then taking 25% of that. It should be about the same correct?
) Im assuming at the end of the year, I will
sorry about the last sentence, I didn’t realize it was at the bottom of the window and it wont let me erase it.

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  • Federal Tax on 401k Withdrawal
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6 Answers

  1. Steve D on Sep 16, 2011 Reply

    Yes…you have the general gist of the matter. Obviously, if you are having more withheld then necessary, it means that your tax return will be smaller or if your withholding is not enough, you will owe more.

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  2. pickmefirstplz on Sep 16, 2011 Reply

    with the additional 23k it might move you into the next tax bracket and don’t forget if the state you live in has a tax on income

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  3. the tax lady on Sep 16, 2011 Reply

    Hint, get out a blank 1040 for 2010. Then fill it in as if you did and did not take $ 23,000 from the 401k. Use 1040-ES to get the tax brackets for 2011–and scratch out the making work pay credit.

    Then compare the 2 results to see what tax you will actually owe for the 401K. The money is also added to your AGI and can have an impact on the schedule A as well.

    Then when you take the 401K money, try to pick withholding close to the actual bill. Most companies withhold only 10% for tax and 10% for the penalty for a total of 20%. If you end up owing 25%, you will be 15cents short on the dollar. If they offer to withhold 30%, go for it.

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  4. mrreliable3599 on Sep 16, 2011 Reply

    If you’re in the 25% marginal rate bracket, you must add the 10% penalty, for a total of 35% federal tax, plus any state tax you may owe. to clar $ 15,000 $ 23k is about right. Federal taxes would be $ 8,050. Subtract withholding of $ 4,600, and you’ll owe an additional $ 3,450.

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  5. Judy on Sep 16, 2011 Reply

    Basically you have it correct. But on your tax return you’d have both the tax (25%, assuming none of it goes into the next bracket) and the 10% penalty, so 35% of what you withdrew. The 20% withholding would show as already paid, so you’s owe another 15%.

    So taking out around 23K to clear about 15K is correct math.

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  6. tro on Sep 16, 2011 Reply

    yes, your early withdrawal will be 10%, if you take $ 15000, that will be $ 1500(or whatever you take)
    and if your income tax bracket is 25% with your wife and yourself, you will pay that % for income tax

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