401k question

[Maikeru-sama]

If a person decides to cashout their 401k, does the company that holds the
401k takeout federal taxes before distribution or is the person responsible for paying taxes
To federal gov?

Typing on blackberry storm..apologize for typos.

 

[Nors]

I believe the answer is yes, usually a 20% withholding.

Also remember if this is a premature distribution you will pay a 10% penalty plus the taxes.

Most plans allow a participant to borrow up to 50% of your balance and pay back to yourself over 5 years. If I was your personal financial advisor that is what I would tell you to do. I hope that helps.

 

[Hostile]

If a person decides to cashout their 401k, does the company that holds the
401k takeout federal taxes before distribution or is the person responsible for paying taxes
To federal gov?

Typing on blackberry storm..apologize for typos.

I cashed out mine in late October and yes they do.

 

[WoodysGirl]

You're still hit on the back end for 10% penalty.

 

[tomson75]

They pull taxes out of my ESOP. I'd assume they do the same for a 401k.

 

[Nors]

I cashed out mine in late October and yes they do.

Too bad, that is about the worst financial decision you could ever make. And you will pay a 10% penalty/tax on top of that.

 

[Maikeru-sama]

Thanks for the info.

 

[Garland powerplay]

I was audited and no they didn't take out tax. I was hit w/out knowing it. They may have changed the rule but definitely check if they did because the IRS will be calling.

 

[CoCo]

Make your withholding wishes known.

If for some reason you have a non-compliant employer who decides to do their own thing regardless you can still protect yourself by making an estimated taxes payment yourself directly to the IRS.

The key on these non-qualified early withdrawal's is to realize as someone earlier mentioned that the entire amount will be taxable plus you'll pay another 10% penalty on top of that. Very painful, but if you must, then you must.

 

[Maikeru-sama]

I have done more research and I realize I should expect a 1099 Form.

I read that on the 1040, there is a line to enter the total 401K amount I received and another line to enter the 10% penalty.

I received my distribution check in the mail yesterday. At the bottom, it stated the gross amount and then there was a Federal Taxes subtraction.

I am not going to do my own taxes this year, but I have been told by several Mortgage Officers that I can avoid the 10% penalty if the distribution goes towards a house. However, I am not going to buy a house by December 31st and the money will go towards paying my student loan off.

Sucks, but I was sick of seeing the crap go down, especially since some of it was invested in Centex, which is who I worked for previously.

 

[WoodysGirl]

I have done more research and I realize I should expect a 1099 Form.

I read that on the 1040, there is a line to enter the total 401K amount I received and another line to enter the 10% penalty.

I received my distribution check in the mail yesterday. At the bottom, it stated the gross amount and then there was a Federal Taxes subtraction.

I am not going to do my own taxes this year, but I have been told by several Mortgage Officers that I can avoid the 10% penalty if the distribution goes towards a house. However, I am not going to buy a house by December 31st and the money will go towards paying my student loan off.

Sucks, but I was sick of seeing the crap go down, especially since some of it was invested in Centex, which is who I worked for previously.

You can also reinvest some of it into another retirement acct. IRA or something. Still pay some of your student loan off, but if you put some that you can use towards a house in another IRA, then that may save you as well.

 

[Nors]

You do have the option of changing the mix of your investments. There are very low interest paying cash funds you can move money into that are safe to market falls

 

[Nors]

you have to look at 401K, stocks and mutual funds LONG TERM. Long term gains are historically made. Biggest mistake you can make is bailing at low point in markets.

I am doubling up and BUYING at these bargain rates!