So, here is the scenario. I just lost my job and received a check for my 401K. I am 46 years old, so it is considered an early withdrawal. I had an outstanding loan against my 401K for $22,000.

The balance in my account was $70,478. They withheld the Federal Income Tax, which was $14,095. They withheld the outstanding loan of $22,000. So, I received a check in the amount of $33,874.

My question is this, what will I still owe? Will I owe a 10% penalty on the full amount of $70,478? And on top of that will I have to include the taxable income amount on my taxes? Last question? Could you please tell me what more I need to set aside to make sure I am ok when tax season comes around? Will I owe 10% plus another percentage with my taxes? What is taxable income amount? How is that figured?

Please help, I want to make sure I do not make a mess of things for tax season!

ScottGem

Ok, let me get this straight. The total, including the Loan balance was $70K. After taking out the 20% withholding that left $56K, then the $22K balance left $34K.

So, assuming you do not roll over what you got, You will owe another $7K at tax time. In addtion, $70K will be added to your taxable income for the year. How that will affect your taxes we can't know. But the 20% was only a withholding just like the amounts withheld from your salary. the actual amount of your tax liability won't be determined until you file your taxes.

If you do rollover the $34K (which I recommend), you will still need to pay a $2200 penality on the loan balance (unless you repay it) and the $22K will be added to your taxable income.

AtlantaTaxExpert

Scott addresses all the pertinent issues.

Three word: ROLL IT OVER!