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    tar8's Avatar
    tar8 Posts: 1, Reputation: 1
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    #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!
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