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Old 01-29-2014, 01:10 AM
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I forgot to add my 401k cash out. What will Happen if I wait to amend my Taxes until next year? Will I get penalized more?

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Old 01-29-2014, 07:34 AM
Join Date: Oct 2010
Posts: 5,245
Originally Posted by b8a3r View Post

#1;I forgot to add my 401k cash out. What will Happen if I wait to amend my Taxes until next year?

#2;Will I get penalized more?
#1;An early withdrawal is considered income and must be reported on that year's filing. With rare exceptions, all 401K withdrawals are taxable as ordinary income taxed at your reg marginal rate. An additional 10% early distribution penalty tax will be assessed if you have not reached at least age 59 ½ when you take your distribution. Several exceptions to this penalty include:you die and the account is paid to your beneficiary;you become disabled;you terminate employment and are at least 55 years old;you withdraw an amount less than is allowable as a medical expense deduction;you begin substantially equal periodic payments;your withdrawal is related to a qualified domestic relations order. In addition to penalties and taxes due upon a 401K early withdrawal, you lose all the potential future investment growth of that retirement plan money. Furthermore, since there are annual limits to the amount you can contribute to a 401K plan, you can’t make up for a previous withdrawal later, even when you are on more solid financial ground.Although 401K loans have their own significant drawbacks,you may consider a 401K loan if you are in a financial pinch and the only option appears to be your retirement money. A 401K loan should be preferable to an outright 401K withdrawal.

Note; you need to determine your federal marginal tax rate. This is the tax rate that you pay on the highest bracket of your taxable income. This is your income after all deductions and exemptions are taken out. Also you need to calculate your state marginal tax rate. If you live in a state with no income tax, then you can skip this step. Otherwise, you will need to find your state tax rates, as each state varies. Your state should have a website , dept of rev, telling you these numbers. Add the 10 percent early withdrawal penalty. The IRS adds on this penalty when you take a withdrawal from your 401(k) if you are younger than 59 1/2. Add this number to your state and federal taxes that you calculated, and this will be the total amount of your taxes on an early 401(k) withdrawal. they generally will withold 20% but you will owe moreaslongas your tax rate is higher than 20% . then you need to pay estimated tax.

#2; as you forgot to add your 401k cash out, you need to pay penalties. To sum it up, the tax penalty for withdrawing money from your 401(k) before you reach age 59 ½ is 10 percent of the amount you withdraw, in addition to any regular income taxes you owe on the money you withdraw. To report the withdrawal and pay the tax penalty, you’ll need Form 5329, Additional Taxes on Qualified Plans. Report the total amount of your early withdrawal on line 1 of the form. On line 2, deduct any withdrawals that aren’t subject to the tax penalty, such as qualifying hardship withdrawals. It is not available for yu though. Multiply the total on line 3 by 10 percent to figure the tax penalty you owe. Include this amount on line 58 of your form 1040.

Income Tax
You’ll also owe regular income tax on your 401(k) withdrawals, whether they are subject to the penalty or not. You report the amount of the withdrawals on line 16A of your 1040, under Pensions and Annuities. The money you withdraw from your 401(k) is treated as ordinary income, and added with other income for the year to determine your AGI. The extra 10-percent penalty for early withdrawals is added as an additional tax as said above, after you figure the tax you owe on your AGI.

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