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aagren
Apr 16, 2007, 04:49 PM
I left my company and have a rather small 401K and a small pension. I am eligible to withdrawal the money and I am contemplating it to pay off some debt. I know 20% will be withheld at the time of the withdrawal. I also know I will have a 10% penalty. Will I have to pay additional taxes on this income if I take the withdrawal?
AtlantaTaxExpert
Apr 23, 2007, 01:31 PM
The withdrawal will be taxed at your marginal tax rate (that's the tax rate on the LAST dollar you earn in the tax year) for BOTH the federal and state taxes, PLUS a 10% early withdrawal penalty.

BOTTOM LINE: DO NOT DO IT! The total tax rate approaches 50% in some isntances, but will be at least 33%.

Roll the money over into a rollover IRA, and leave it alone. Use it as a retirement fund and let it grow.