Originally Posted by trickysr
#1;I recently took the cash out option for my pension. I am 47, and I received this pension from a previous employer in NC. Do I have to pay taxes on it?
#2; If so, what percentage ?
#1; I think so; you will be hit with an automatic tax for withdrawing it and as you're not considered old enough( you are much younger than 591/2) to retire, penalties may also be added. When you're pulling money from a pension, the IRS treats it as income. From there, the only real difference is when you're billed for income taxes. pension plan includes both defined benefits and defined contributions, people most often compare defined contribution 401(k) plans to defined benefit pensions.
#2; If you cash out on a 401(k), 20 percent is withheld immediately. With a traditional IRA, a withdrawal is still treated as income, but the tax is levied at the end of the year. The only exception is if it's a R-IRA, where you pay the taxes up front. In addition to income taxes, your retireemnt administrator penalizes you by taking out an additional 10 % early withdrawal penalty. This means when you draw your check, 30 % is taken out. This penalty is added if you take the cash before you turn 59 1/2 years old, your full retirement age for a 401(k) or traditional IRA. With a R-IRA, you can withdraw any of the money you put into it without penalty.
If an "immediate and heavy financial need" forces you to withdraw the money before you reach full retirement age, the 10 %penalty is waived. However, retirement administrator to decide what qualifies as a financial hardship,i.e., illness, avoiding eviction or buying a first home.