401(K) Cash Distributions: Taxes, Penalties, & Tax Strategies
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- เผยแพร่เมื่อ 9 ก.ค. 2024
- When an employee unexpectedly loses their job and needs access to cash to continue to pay their bills, it’s not uncommon for them to elect a cash distribution from their 401(K) account. Still, they may regret that decision when the tax bill shows up the following year and then they owe thousands of dollars to the IRS in taxes and penalties that they don’t have. But I get it; if it’s a choice between working a few more years or losing your house because you don’t have the money to make the mortgage payments, taking a cash distribution from your 401(k) seems like a necessary evil. If you go this route, I want you to be aware of a few strategies that may help you lessen the tax burden and avoid tax surprises after the 401(k) distribution is processed. In this article, I will cover:
• How much tax do you pay on a 401(K) withdrawal?
• The 10% early withdrawal penalty
• The 401(k) 20% mandatory fed tax withholding
• When do you remit the taxes and penalties to the IRS?
• The 401(k) loan default issue
• Strategies to help reduce the tax liability
• Pre-tax vs. Roth sources
Contact Michael Ruger with Questions: 518-477-6686 or mruger@greenbushfinancial.com
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Very clear and concise. You explain things well. Keep up the good work.
Thank you for your Videos! Very Clear and Painful yet very Insightful Analysis with crystal clear PENALTIES AND TAXES ARE ALWAYS MORE THAN YOU THINK (or can picture paying for Your Money you Diligently tried to save for Retirement and especially while losing a job it hurts beyond belief)... Borrow if you must from Your Parents or Grandparents if you must, but don't try to touch Retirement Savings... (It was designed be deliberately painful especially for people with Math Skills who nevertheless never thought of Accounting and Taxes 😢)...
You r fantastic...omg took me three days of cramming info and then found your site and it was awesome...to know that u care about this so passionately to share with your fellow community thank you and you did it with such ease and simplicity...this for u is a gift so Thank you for sharing that gift.
Blessings 🙌
So if I understand correctly i would claim my 401k lump distribution with my earned income on my 1040 form line one instead of line 5a and 5b? I opted for the 10% to be taken out before distribution which is reflected on my 1099 R form. It also has code 1 in box 7 which I understand is good. Due to Covid19 in 2020 no work company lay off. I believe I have to file schedule 1 (1040) line 8 : other income list type: 401k & amount and schedule 2 (1040) line 8..taxes from: check box enter code from 1099 R then fill in amount of taxes withheld ? I hope I got this right ? Well if not it will be a very expensive learning curve..thank you in advance for any helpful advice you can give 😉
I just don’t understand why the company match is called “free money” ? Afterall, you have to pay taxes on the company match when your ready to withdraw it after retirement.
Thank you
Where do I report 1099-R Code U from my 401K in 1040 Form and any penalty?
Thank you for your Videos. What if you Rollover your ROTH 401k into 5 year aged existing ROTH IRA, and then take a withdrawal a few months or years later? Which portion of that withdrawal would be Taxed and Penalized by Taxes on top of Taxes? Are there Tax Lots preserved in ROTH 401k telling what is considered Contribution and when Loses happened in each of the Lots, or is it all mixed into a Blended ROTH 401k with only buckets contribution matching by Employer and Employee Contribution Base rolling Total?
In your example, if you rollover a Roth 401k source into a Roth IRA, you are under the age of 59.5, and take a withdrawal from the Roth IRA, any amount that represents your cost basis (contributions) to the account are withdrawn tax and penalty free, the earnings piece is subject to taxes and penalties. The burden of proof of the cost basis amount is on you so it usually makes sense to get a contribution report from the 401k platform to verify when the rollover was processed how much of the Roth rollover was cost basis and how much was earnings. If you had Employer money in your 401k, prior to 2023 all ER money was pre-tax, so you would have to rollover that money to a separate Traditional IRA, and distributions from a pre-tax trad IRA are fully taxable and subject to penalties if under the age of 59.5 (Comment is for education. Not advice)
GET YOUR MONEY OUT OF THE BANKING SYSTEM NOW!
That means savings, checking, stocks, bonds, Insurance and
safety deposit boxes. Anything to do with a bank, insurance
company or a financial company, GET OUT!
So if I owe taxes ....when I get my taxes done( at like an Hand R block).... And I owe taxes from the previous year ....can they take my loan money if I apply for a 401 k loan??
Yup the IRS aka government is the mafia since that 401k money is tax deferred. They will take it out when you file taxes the following tax season You have to learn tax strategies to become tax free
So for instance, I left a job and took the balance of my Roth 401k of $5,000. However, my original overall contributions was $5500. There would be no 10% penalty or taxes owed because their was negative growth? Is that correct?
Correct. With the Roth source, you only have to pay the 10% early withdrawal penalty on the earnings. (Comment is for education. Not advice)
1257
If I take under $20,000 a year will I still get taxed 20% if I’m over 65
Any cash distribution from a 401(k) plan that would otherwise be eligible for a direct rollover is subject to the mandatory 20% fed tax withholding. Whether you end up getting some of that back when you file your taxes or owe more, will depend on your personal tax situation. There is no specific age where the 20% mandatory fed tax withholding is not applied. (Comment is for education. Not advice)