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 Captial Gains?

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

ScottGem

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

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

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

You STILL did not say WHY???

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

jastone

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

ScottGem

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

Agreed!