Ask Experts Questions for FREE Help !
Ask
    tar8's Avatar
    tar8 Posts: 1, Reputation: 1
    New Member
     
    #1

    Jan 17, 2008, 03:08 PM
    Early distribution IRS penalty
    I have an annuity under my 401K plan that I want to cash in. I know I'll have to pay taxes on the distribution. I'm wondering what the penalty will be to the IRS? I am 49 1/2 years old.

    Thank you
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
     
    #2

    Jan 17, 2008, 03:14 PM
    FOUR WORDS: Do Not Do IT!!

    You could end up paying AT LEAST 25% in taxes, and perhaps as much as 50%.

    First, you would pay a 10% Early Withdrawal Penalty.

    Second, you pay taxes at your marginal tax rate. That is the tax rate you pay on the LAST dollar you earn in 2008. It could be as low as 10% or as high as 35%. You will likely pay at least 15% and probably 25%.

    Third, you pay STATE income taxes, which can be as high as 15%, but averages around 7%.

    It is just NOT WORTH IT!

    Leave it alone and let it grow for your retirement. That is what you started the 401K for to begin with!

Not your question? Ask your question View similar questions

 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.


Check out some similar questions!

401K early withdrawal penalty [ 6 Answers ]

When my husband and I bought our new home in 2005, we both withdrew money from our 401Ks. I took $5,693 of which they took 20% in federal income tax withheld and he took $8,000 of which they took 10% in federal income tax withheld. They are now coming back to me and saying we both owe the 10%...

Avoid early payoff penalty? [ 1 Answers ]

I was brain storming and trying to figure out a way to avoid an early payoff penalty on my auto loan. I have a little over than $1,000 left on the balance of the loan, and if I payoff before November 2008 I incur a penalty. The actual maturity date is not until May 2009. I was thinking if...

Early withdrawal penalty [ 1 Answers ]

I took a 401K withdrawl to pay for daughters college. I paid it back while employed. I changed jobs and I was issued a 1099-R as income from the unpaid balance of the original withdrawl. Question is: Can the 10% penalty be waived for early withdrawl from 401K or is relief only applicable with...

401K Distribution penalty [ 3 Answers ]

I had no choice but to take a hardship withdrawal from my 401K after being let go by my employer. It was a difficult time also having been displaced by a house fire and having to rebuild our home and pay for a portion of our alternate living expenses not covered by the insurance company. Being a...


View more questions Search