Originally Posted by Travdog1985
Because I don't want to file bankruptcy, I am entertaining the idea of cashing out my 401k when I get another job. If I do so, I know I will have heavy taxes and fees. Currently, I have 46,269 in my 401k. I was making $61,777 ( On top of which I received a 17 percent bonus that I claimed exempt on) until I demoted myself late in the year (around October) and am currently making $48,000. I also have two outstanding loans on the 401k at $5356 and $6050. How much cash will I receive after penalties and upfront tax deductions, and how much will be due during tax season come April next year?
As you can see, Emeployee-sponsored 401(k) savings accounts allow you to save for retirement while deferring your income tax liability on the funds added to the account through direct contributions, payroll withholding and employer contributions. When funds are withdrawn from the account, you must pay income taxes at your current tax rate on the total withdrawalIf you do not wait until the age of 59-1/2 to withdraw your 401(k)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 $10k, you must pay your taxes and then a $1k penalty for using the funds prior to reaching the minimum age. So as said, payments received from your 401(k) account are considered income and taxed at the federal level, you must also pay state income taxes on the funds. The only exception occurs in states without an income tax. Your 401(k) plan may offer you the opportunity to have taxes automatically withheld from a withdrawal. If you live in a county or city that levies a local tax on income, your withdrawal from a 401(k) plan is subject to taxation at the local tax rate as well. Many local income tax districts have their taxes collected when you file a state income tax return, so you may not have to file an additional return to pay this tax.If you are unsure if your account offers this option, you need to contact the administrator. You need to enter the amount of your early 401(k) plan withdrawal subject to the penalty on Line 3 of Form 5329.also you need to enter the amount of the penalty, if any, on Line 4 of Form 5329 and Line 58 of Form 1040. The penalty equals 10 percent of the amount of the distribution not exempt. For example, if you take a $10k distribution but $6k is exempt, you only owe a $400 penalty because only $4k is not exempt.You also need to enter the amount of federal income tax withholding from your distribution found in Box 4 of Form 1099-R on Line 62 of Form 1040.you also need to pay estimated taxes UNLESS your marginal t ax rate is lower than the withholding ta x rate
For accurate tax liabilities on the withdrawn funds from Your 40-1K plan you need to get professional help from an Enrolled Agent or a CPA doing taxes in your local area.
NOTE: The IRS allows for hardship exceptions that allow you early access to your 401(k) funds without the 10% penalty. You need to check with your Human Resources department if you're not sure if your plan allows hardship withdrawal.Like a 401k loan, your employer must adhere to some very strict and detailed guidelines.The IRS code provides for hardship withdrawals only if the withdrawal is due to an immediate and heavy financial need; the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need); the withdrawal must not exceed the amount needed by you; you must have first obtained all distribution or nontaxable loans available under the 401k plan; and you can't contribute to the 401k plan for 6 months following the withdrawalAnd ALSO, if you or a member of your immediate family needs access to medical care, you may withdraw funds without penalty. You also may withdraw money to purchase a principal residence, to save it from foreclosure or to make certain types of repairs to the property. Withdrawals also are allowed for education expenses that belong to you or a member of your immediate family within the next 12 months and can be used to pay for a funeral for you or a member of your immediate family. While you do not have to pay the 10 % penalty on these withdrawals, it is important to note that you still will owe full income taxes. For the purposes of early 401(k) withdrawals, consider your immediate family to consist of you, your spouse, children, other dependents and your beneficiary.