[mimilisa]

I have $68,000 in my 401k and I have lost my job, what and how much will I have to pay in taxes and penalties if I take a lump sum distribution? Our combined income for the year will be at least $95,000 not counting the 401k.

[ScottGem]

You will pay at least a 10% penalty then you will add the $68K to your $95K to determine your total tax liability.

[mimilisa]

Thank you ScottGem

[ebaines]

Be aware that if you take ths distribution the plan administrator will automatically withhold 20% for estimated federal taxes. This of course is just a down payment on your taxes - whether you will owe more or not can't be determined with the little bit of info you've provided. As ScottGem mentioned in addition to regular income tax on the distribution you must also pay a 10% early withdrawal penalty (assuming you were under 55 years of age when you lost your job). That 10% is not automatically withheld, so be sure to keep enough cash on hand to pay the expected extra tax bill in April. Finally - depending on where you live you may have to pay state/local income tax on the distribution as well.

[AtlantaTaxExpert]

Given you have no job, you probably have NO CHOICE but to access the 401K, but there will be a BIG tax bill when you do it.

I recommend that you first roll the money over into a rollover IRA, then make monthly withdrawals as you need them from that IRA. That way, if you manage to find a job in the next few months, you will not get slammed with a tax bill on the entire $68,000, but rather only on what you withdrew.