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    ANC1's Avatar
    ANC1 Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Jul 11, 2007, 03:00 PM
    401(k) & ESOP withdrawal penalties and tax
    Hello everyone,

    I will be unemployed for the next 4 months so am having to cash out my 401k and ESOP to survive. I am leaving my current job August 3, and, if it matters, I will be leaving in order to student teach until December when I will get my degree. I will begin my next job in January, and I won't receive another paycheck until the end of February 08.

    My question is, I will be withdrawing 10,619.00 from my ESOP and 3,567.00 from my 401k. I estimate the penalties/taxes will be 25% from what I was told by our CFO. I live in Alabama. My husband and I file jointly and together we made about 65-70k last year.

    I have not been able to reach my accountant to get this squared away, so I was hoping I could get some answers here. Any information or advice you could provide will be greatly appreciated.

    Thank you!
    slipkin's Avatar
    slipkin Posts: 2, Reputation: 1
    New Member
    		  
    #2

    Jul 11, 2007, 06:07 PM
    Quote Originally Posted by ANC1
    Hello everyone,

    I will be unemployed for the next 4 months so am having to cash out my 401k and ESOP to survive. I am leaving my current job August 3, and, if it matters, I will be leaving in order to student teach until December when I will get my degree. I will begin my next job in January, and I won't receive another paycheck until the end of February 08.

    My question is, I will be withdrawing 10,619.00 from my ESOP and 3,567.00 from my 401k. I estimate the penalties/taxes will be 25% from what I was told by our CFO. I live in Alabama. My husband and I file jointly and together we made about 65-70k last year.

    I have not been able to reach my accountant to get this squared away, so I was hoping I could get some answers here. Any information or advice you could provide will be greatly appreciated.

    Thank you!
    Your employer knows the docuementation criteria and therefore, the answer given is correct. There are always exceptions, and your accountant is the only person capable of giving you the correct advice.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #3

    Jul 12, 2007, 09:05 AM
    You will pay normal income taxes (about 25%) on the ESOP distribution for stock owned less than one year.

    You will pay capital gains taxes (about 15%) on the ESOP distribution for stock owned more than one year.

    Your will pay normal income taxes (25%) on the 401K distribution PLUS a 10% Early Withdrawal Penalty.

    Of the three, TRY to avoid making the 401K distribution. Instead, roll it over into an IRA and make it the LAST money to access.
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