401k withdrawal to pay taxes
If you do not wait until the age of 59-1/2 to withdraw your 401(k) funds, you may pay a penalty tax in addition to federal, state and local taxes. In most circumstances, an early withdrawal triggers a penalty equal to 10 percent of the withdrawal amount.For example, if you withdraw $10,000, you must pay your taxes and then a $1,000 penalty for using the funds prior to reaching the minimum age.n most circumstances, an early withdrawal triggers a penalty equal to 10 percent of the withdrawal amount. For example, if you withdraw $10,000, you must pay your taxes and then a $1,000 penalty for using the funds prior to reaching the minimum age. You are correct that your 401(k) withdrawal will be taxed at the various tax rates listed, depending on your filing status and the taxable income shown on your tax return.The good news for you in your particular situation is that because you are older than 59 1/2, the 10 percent additional tax penalty will not apply.01(k) withdrawals are taxed like ordinary income. To ask a question on Tax Talk, go to the  Ask the Experts  page and select Taxes as the topic. You cannot invest directly in an index. *Withdrawals from your qualified plan are taxed as ordinary income and may be subject to a 10% Federal tax penalty if taken prior to age 59 1/2. If you left your employer in or after the year in which you turned 55, you may not be subject to the 10% early withdrawal penalty.ou cannot invest directly in an index. *Withdrawals from your qualified plan are taxed as ordinary income and may be subject to a 10% Federal tax penalty if taken prior to age 59 1/2. If you left your employer in or after the year in which you turned 55, you may not be subject to the 10% early withdrawal penalty. [See 7 Signs of a Good 401(k) Plan .]. Withdrawals before retirement. If you take 401(k) withdrawals before age 55, you will generally have to pay income tax and a 10 percent early withdrawal penalty on the amount withdrawn.f you decide to transfer your retirement savings from a 401(k) to an IRA, ask your former employer to directly transfer the money to an IRA or different 401(k). If the company makes out the check to you, 20 percent of your account balance will be withheld for income tax. At some point, you will pay taxes to withdraw that money, but you won't right away. If you try to take money out of your 401(k) before you turn 59 1/2, the funds are taxed as regular income -- plus, you'll get hit with a 10 percent early withdrawal penalty.he only other way to withdraw money early from a 401(k) without paying the 10 percent penalty is through IRS rule 72(t), which allows you to deduct a fixed amount annually based on your age. For example: suppose you fall in the 28 percent tax bracket. If you take a $10,000 hardship withdrawal to pay for your child's college tuition, you will owe $2,800 in federal income taxes and an additional $1,000 to cover the early withdrawal penalty.ax Pain. What many 401k participants, desperate for money, may forget is the cost of taking a financial hardship withdrawal. A $10,000 withdrawal does not equal $10,000 in your pocket. If you are under 59 1/2, you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties. Congress and the IRS call withdrawals from a 401(k) or other qualified retirement plan a distribution. In general, if you take a distribution from a traditional individual retirement account such as a 401(k) or other qualified retirement plan before you turn age 59½, you are subject to a 10% penalty tax.ongress and the IRS call withdrawals from a 401(k) or other qualified retirement plan a distribution. In general, if you take a distribution from a traditional individual retirement account such as a 401(k) or other qualified retirement plan before you turn age 59½, you are subject to a 10% penalty tax. Note that penalty-free does not mean tax-free. All traditional IRA and 401(k) withdrawals require that you pay taxes at ordinary income rates. Contributions to a Roth IRA can be taken out at any time, and its earnings may be withdrawn penalty and tax-free after five years.The same rules apply to a Roth 401(k), but only if the employer plan permits.ote that penalty-free does not mean tax-free. All traditional IRA and 401(k) withdrawals require that you pay taxes at ordinary income rates. Contributions to a Roth IRA can be taken out at any time, and its earnings may be withdrawn penalty and tax-free after five years. In addition to federal and state income tax, investors younger than 59½ who cash out have to pay a 10% early withdrawal penalty. The potential result: Cashing out $50,000 in 401(k) savings may leave just $35,000 in cash after 20% withholding and a 10% early withdrawal penalty.n addition to federal and state income tax, investors younger than 59½ who cash out have to pay a 10% early withdrawal penalty. The potential result: Cashing out $50,000 in 401(k) savings may leave just $35,000 in cash after 20% withholding and a 10% early withdrawal penalty. Tax Pain. What many 401k participants, desperate for money, may forget is the cost of taking a financial hardship withdrawal. A $10,000 withdrawal does not equal $10,000 in your pocket. If you are under 59 1/2, you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties.ax Pain. What many 401k participants, desperate for money, may forget is the cost of taking a financial hardship withdrawal. A $10,000 withdrawal does not equal $10,000 in your pocket. If you are under 59 1/2, you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties.
If you do not wait until the age of 59-1/2 to withdraw your 401(k) funds, you may pay a penalty tax in addition to federal, state and local taxes. In most circumstances, an early withdrawal triggers a penalty equal to 10 percent of the withdrawal amount.