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jastone · Jan 28, 2008, 11:39 AM

Last year I took a early withdraw from my 401k last year after leaving my job. I had 30% withheld for Fed. Taxes. I am getting ready to have my taxes prepared. I have several questions.

1. Was 30% enough? Does 10% penalty still apply?

2. I live in the state of IL. Will I owe state taxes?

3. Can I exersise Capital Gains?

4. Can the 401k proceeds put me in a new tax bracket?

ScottGem · Jan 28, 2008, 11:52 AM

1. Don't know since it depends on your income. But yes the penalty still has to be paid.

2. Yes

3. No.

4. Maybe.

AtlantaTaxExpert · Jan 28, 2008, 02:41 PM

Scott:

Good answers, given the lack of information.

Jastone:

We need dollar amounts if you want precise answers!

Also, tell us WHY you withdrew the money is a good idea as well.

jastone · Jan 28, 2008, 02:52 PM

Wife and I have W2 wages of 122,575.00 w/ $14,689 Fed with held
401k w/d $117,377.00 w/ 30% with held

AtlantaTaxExpert · Jan 28, 2008, 03:29 PM

You STILL did not say WHY??

By the time you answer, I will be home and can run the figures on my computer.

jastone · Jan 28, 2008, 03:50 PM

To pay off high interest c.c. and behind in mortgage.

ScottGem · Jan 28, 2008, 04:30 PM

So, in effect you almost doubled your income with the withdrawal. And you don't think that's not going to bump you up a bracket? I can't answer whether you withheld enough or not. But I doubt if the interest on the cc would have cost you as much as the withdrawal will. Did you think of taking a loan? You probably would have been able to get a loan against the 401K that would have lowered your monthly payments, and you would have been paying back the interest to yourself.

Now, that $117K is going to cost $40-$50K. And that's not counting the loss of investment income. Too bad you didn't find us or ask for advice before you made this mistake.

AtlantaTaxExpert · Jan 30, 2008, 08:35 AM

Agreed!