Taxes on 401k @ 59 1/2 in Wash State (federal, retirees, friend, payments)

[jaybird28]

I'm a year from 59 1/2 and I'm thinking of starting to take aadvantage of my 401k. My wife will continue to work for 6yrs until her 401k kicks in. Two questions

1) How much can I go out and earn in a part time job without penalty

2) I'm with Fidelity. How do I withdraw from my mutual funds and how much in taxes do I pay in Wash State?

[StealthRabbit]

Originally Posted by jaybird28

I'm a year from 59 1/2 and I'm thinking of starting to take aadvantage of my 401k. My wife will continue to work for 6yrs until her 401k kicks in. Two questions

1) How much can I go out and earn in a part time job without penalty

2) I'm with Fidelity. How do I withdraw from my mutual funds and how much in taxes do I pay in Wash State?

1) No 'wage income' penalty on 401k (only on SS at 62 plus). It will be taxed by IRS at your normal rate (depending on total income)

2) No taxes to WA state on personal income.

3) Fidelity, you can do a roll to self directed IRA with Fidelity or any other custodian you would like to choose. Just request transfer from 401k.com (Fidelity), and follow the rules!!! (Don't touch the money, don't let it sit around. You want to do a direct transfer to next custodian, or it could linger and be deemed a 'distribution' !!!

Follow ALL the rules... I had a retiree friend get a HUGE surprise because he cashed out his 401k and it had a loan on it. (loan was considered a distribution in a high tax yr (severance).)

If you get some low tax yrs, you should look at transferring some 401k monies to ROTH IRA(if you feel your tax rates may climb in your old age.) There is a lot of flexibility in a ROTH IRA for young retirees.

[oldsoldier1976]

Originally Posted by StealthRabbit

1) No 'wage income' penalty on 401k (only on SS at 62 plus). It will be taxed by IRS at your normal rate (depending on total income)

2) No taxes to WA state on personal income.

3) Fidelity, you can do a roll to self directed IRA with Fidelity or any other custodian you would like to choose. Just request transfer from 401k.com (Fidelity), and follow the rules!!! (Don't touch the money, don't let it sit around. You want to do a direct transfer to next custodian, or it could linger and be deemed a 'distribution' !!!

Follow ALL the rules... I had a retiree friend get a HUGE surprise because he cashed out his 401k and it had a loan on it. (loan was considered a distribution in a high tax yr (severance).)

If you get some low tax yrs, you should look at transferring some 401k monies to ROTH IRA(if you feel your tax rates may climb in your old age.) There is a lot of flexibility in a ROTH IRA for young retirees.

Only up to any earned income he reports. He can contribute up to that amount.

[Ariadne22]

Originally Posted by jaybird28

I'm a year from 59 1/2 and I'm thinking of starting to take aadvantage of my 401k. My wife will continue to work for 6yrs until her 401k kicks in. Two questions

1) How much can I go out and earn in a part time job without penalty

2) I'm with Fidelity. How do I withdraw from my mutual funds and how much in taxes do I pay in Wash State?

401k withdrawals (assuming the account is tax-deferred and not a Roth) after age 59-1/2 are never subject to penalty either from withdrawal or earnings.

You can earn as much as you want at your part-time job.

But, assuming this is a tax-deferred 401k, any withdrawals are subject to ordinary income tax. There is no capital gains treatment on these tax-deferred withdrawals.

But, because you live in the State of Washington, there isn't any Washington income tax.

Because.....

The State of Washington has no personal income tax.

From the WA State Department of Revenue:

No income tax in Washington State

Washington State does not have a personal or corporate income tax.

Income tax

Therefore, your only concern is the federal income tax. You may need to file estimated federal tax payments on Form ES if your withdrawals together with your wife's income produce a federal tax liability in excess of your wife's withholding.

As far as "how do I withdraw?" You should already have online access to this account for trades. After you leave the company, you should be allowed to set up access for withdrawals. Check with your employer and/or your 401k Administrator. No one here can tell you how to mechanically accomplish these withdrawals.

[Petunia 100]

Originally Posted by golfingduo

Only up to any earned income he reports. He can contribute up to that amount.

True, but there is no such rule when converting.