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Old 06-09-2010, 07:26 AM
 
Location: Connecticut
2,727 posts, read 5,790,177 times
Reputation: 1997

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I'm just looking for answers here, not saying I'm gonna do it, so please no negative things. I'm well aware of the big no-no's about it.

I know if you cash it out before you're allowed, you get hit with the penalty and taxes. If you took a distribution and pay the penatly/fees/taxes/etc. right then and there, is that it? Or do you still get hit again when you file your nexxt tax return, or later on when you hit retirement age?


(I do realize I can ask my accountant, but he is unavailable right now, and getting through to the 401k company is next to impossible, so I thought I would bring the question here)
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Old 06-09-2010, 07:58 AM
 
92,645 posts, read 90,305,457 times
Reputation: 67156
check into 72t election ,you can avoid the penalty

Last edited by mathjak107; 06-09-2010 at 08:31 AM..
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Old 06-09-2010, 08:22 AM
 
Location: Jollyville, TX
4,801 posts, read 10,503,680 times
Reputation: 6899
Here's the deal. What they withhold from your distribution is nothing more than estimated taxes. Your actual tax bill comes due when you file your taxes. So, let's just say you had $20,000 in your 401K and you did a withdrawl (which you can usually only do if you terminate with your company).

They would automatically withhold 20% of that, or $4000. When it came time to file your income tax the following year, you would be taxed on any income for 2010, plus the $20,000 and you would also be subjected to the 10% penalty.

So, even though they withheld $4000, your actual tax liability may be higher depending on if you had any additional income for the year and your overall tax situation. The $4000 of withholding would go towards your tax payment.
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Old 06-09-2010, 08:49 AM
 
630 posts, read 1,775,078 times
Reputation: 360
Unless you are in a catastrophic medical condition,do not remove your money! Buying a new home? NO,save for a downpayment! Going to college? NO,join the National Guard,or get hired by a company who will pay for it! Forget you even have that money! I would go back to exotic dancing (that is,if I lost 50 pounds and grew hair on the top of my head again!),before I would countenance making that move.People are beginning to look at their IRA's like HELOC's,FOOLISH, PLEASE DON'T DO IT!!!!!!!!!
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Old 06-09-2010, 08:55 AM
 
14,256 posts, read 16,684,967 times
Reputation: 13776
Quote:
Originally Posted by Moonlady View Post
Here's the deal. What they withhold from your distribution is nothing more than estimated taxes. Your actual tax bill comes due when you file your taxes. So, let's just say you had $20,000 in your 401K and you did a withdrawl (which you can usually only do if you terminate with your company).

They would automatically withhold 20% of that, or $4000. When it came time to file your income tax the following year, you would be taxed on any income for 2010, plus the $20,000 and you would also be subjected to the 10% penalty.

So, even though they withheld $4000, your actual tax liability may be higher depending on if you had any additional income for the year and your overall tax situation. The $4000 of withholding would go towards your tax payment.
The other problem is that this tax event could have the effect of increasing your overall marginal rate so that you would pay a higher rate of tax on all income and not just the 401K.
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Old 06-09-2010, 09:03 AM
 
92,645 posts, read 90,305,457 times
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the reality is that the money before the marginal rate still stays at the same rate.... the additional only would be at the higher rate....

whats more of a concern is certain credits or deductions may be phased out or reduced by the higher income or the amt tax tripped.
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Old 06-09-2010, 09:23 AM
 
Location: Connecticut
2,727 posts, read 5,790,177 times
Reputation: 1997
All income for that year only?

Sorry, I don't understand too much about this part of it.
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Old 06-09-2010, 10:45 AM
 
Location: Jollyville, TX
4,801 posts, read 10,503,680 times
Reputation: 6899
Quote:
Originally Posted by CTGirlNoMore View Post
All income for that year only?

Sorry, I don't understand too much about this part of it.
Yes, for that tax year. So, for example if you made $25,000 in 2010 and you also withdrew $20,000 from your 401K, your total gross income for the year is $45,000. You only pay the 10% penalty on the amount of the withdrawl though. It's a one time event.
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Old 06-09-2010, 10:49 AM
 
Location: Connecticut
2,727 posts, read 5,790,177 times
Reputation: 1997
Ahhh, thank you for clarifying
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