View Full Version : Tax question on 401k withdrawal
jkjsooner
2/23/2011, 03:56 PM
I'm trying to talk my wife out of liquidating a small 401k plan that she needs to roll over into an IRA. I want to make sure I get my math correct. Are you taxed on the full amount of the withdrawal or only on the amount left after the 10% penalty.
Say you're in the 28% tax bracket and you withdraw x, which of the following do you get after penalty/taxes:
x*.9*.72 (only pay taxes on the 90% after the penalty)
x*.62 (pay taxes on the 10% penalty amount as well)
I've tried to look this up but none of the website are clear. They do say there's a 10% penalty on the "taxable amount" which would imply you pay taxes onthe whole thing but I'm not really sure...
jkjsooner
2/23/2011, 04:05 PM
I think I found my answer. I think it's the second one. More ammunition to convince my wife it's a bad idea.
OutlandTrophy
2/23/2011, 04:07 PM
I thought the penalty was just an additional 10% in taxes paid, total.
I think you're right with the second one.
I thought the penalty was just an additional 10% in taxes paid, total.
I think you're right with the second one.
Did he ask for opinions on hole digging?
2121Sooner
2/23/2011, 04:16 PM
I'm trying to talk my wife out of liquidating a small 401k plan that she needs to roll over into an IRA. I want to make sure I get my math correct. Are you taxed on the full amount of the withdrawal or only on the amount left after the 10% penalty.
Say you're in the 28% tax bracket and you withdraw x, which of the following do you get after penalty/taxes:
x*.9*.72 (only pay taxes on the 90% after the penalty)
x*.62 (pay taxes on the 10% penalty amount as well)
I've tried to look this up but none of the website are clear. They do say there's a 10% penalty on the "taxable amount" which would imply you pay taxes onthe whole thing but I'm not really sure...
I believe you are taxed on the whole thing. 28% plus 10% penalty=38% and all that money counts as ordinary income, so could bump up all the taxes.
pphilfran
2/23/2011, 04:31 PM
If memory serves me correctly you pay 10% penalty on the amount withdrawn and then pay the proper tax rate for the total amount...
So...
You withdraw 10k...1k in penalty...2800 in taxes (if a 28% tax rate)..total 3800 taxes due...
2121Sooner
2/23/2011, 04:38 PM
Call your financial planner, that is what they get paid for.
rekamrettuB
2/23/2011, 04:49 PM
If memory serves me correctly you pay 10% penalty on the amount withdrawn and then pay the proper tax rate for the total amount...
So...
You withdraw 10k...1k in penalty...2800 in taxes (if a 28% tax rate)..total 3800 taxes due...
Correct.
It's not 1K penalty and then 9K is taxed at 28% (for example purposes only). The entire 10K is added to your income and taxed appropriately. Then they add another 1K to that total.
jkjsooner
2/23/2011, 05:03 PM
Call your financial planner, that is what they get paid for.
I don't need a financial planner to tell me not to do it.
2121Sooner
2/23/2011, 05:05 PM
I don't need a financial planner to tell me not to do it.
Yeah, but think of all the fees you could pay. Wouldnt that be awesome?
dwarthog
2/23/2011, 05:11 PM
I don't need a financial planner to tell me not to do it.
You knew that from the start, so it isn't to convince you! :D
NormanPride
2/23/2011, 05:14 PM
Highway robbery.
pphilfran
2/23/2011, 05:16 PM
Highway robbery.
The 10% penalty?
I don't need a financial planner to tell me not to do it.
What you need is a man to get that woman of yours in line.
:D (totally kidding)
NormanPride
2/23/2011, 05:28 PM
The 10% penalty?
Taxes in general. :)
pphilfran
2/23/2011, 05:29 PM
Taxes in general. :)
FAir enough....you will probably not like what will happen to tax rates in the next 10 years....
NormanPride
2/23/2011, 06:09 PM
That's why I always vote for smaller government. :D
OUEngr1990
2/23/2011, 06:17 PM
Just don't pay it. Then when (if) the IRS comes knocken, just say oops, forgot..
It may not work, but it will buy you plenty of time...been there done that..:D
OUEngr1990
2/23/2011, 06:19 PM
You can also try to figure out a way to take it as a hardship withdrawal, then you might not have to pay the 10% penealty. You might talk to your financial advisor about this. If you happen to be buying a house, you can use it as a down payment (and call it hardship withdrawal), and not have to pay the 10%.
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