I am moving out of the country in the next couple of months and I want to cash out my 401K.
I have talked to the retirement plan service and they stated that they will take 20% of my funds. My question is, how can I calculate how much more I will need to pay the IRS when I file my taxes in 2009 for 2008? The retirement plan service said it would depend on the tax bracket I fall into. I have not been able to find a tax table specifically for the tax penalty of the 401K, can you help? Also, if I stop working in the US by March, won't I fall into a lower tax bracket because my income will be so much lower than previous years and I won't have to pay so much in taxes for the early with drawl of the 401K? Thank you for your time:confused:

The problem is tax tables for 2008 are not set yet. Did you do your taxes for this year? You might ask your tax preparer. If you used sopftware like TurboTax, they have projection tools where you can do What Ifs to get an estimate. By the way you will also have to pay a 10% penalty.

No I haven't done my taxes for this year yet. I thought the 20% that the retirement service was taking out included the 10%? Because they said that they were required to take out the 20%. So I have 30% to pay in penalties now plus taxes when I do the my 2008 taxes?

Quote:

---

Originally Posted by taurinegb

Also, if I stop working in the US by March, won't I fall into a lower tax bracket because my income will be so much lower than previous years and I won't have to pay so much in taxes for the early with drawl of the 401K?

---

Depends on the size of the withdrawal - if you take a sizeable enough withdrawal it could push you into a higher bracket. Also, don't forget that depending on what state you live in you will also owe state income taxes on the withdrawal. Finally, as Scott says, you will owe an additional 10% penalty.

Ok, thank you for your time : )

No, the 20% is a withholding. Its applied to the taxes you owe for the year. The 10% is a penalty that is paid when you file your taxes. So you will pay a flat 10% of the amount of the withdrawal. In addition, to the 10%, the amount of the withdrawal will be added to your taxable income for the year. That amount will then be used to calculate your total tax liability for the year. Whatever amounts have been withheld during the year will be applied towards your tax liability to determine whether you owe additional amounts or will get a refund.

Agree with all posts.