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    amitarao@hotmail.com's Avatar
    [email protected] Posts: 2, Reputation: 1
    New Member
    		  
    #1

    Jun 29, 2006, 11:00 AM
    Tax Structure on 401K
    Browsed many forums but couldn't find an answer to my Question. I would really appreciate if someone could help me out here.

    I currently have 8000 USD ($8K) in my 401K account. I started it just 2 yrs back. Im planning to take up school next year and leave my job.

    If I withdraw all this 401K amount in the year when I have no other earnings (I will need for my school funding), am I still subject to 20% Federal tax & any other state Tax. I assume 10%penalty will still be applicable.

    Thanks.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #2

    Jun 29, 2006, 12:35 PM
    First the 20% is not a tax it's a witholding. Its similar to the witholding taken from your paycheck. Its done in anticipation of tax liability, not instead of it. What tax you actually owe on the distribution will depend on your total income for the year.

    As for the 10% penalty, check with your plan admin, you may qualify for a hardship withdrawal that would eliminate the penalty. I think education expenses may qualify.
    amitarao@hotmail.com's Avatar
    [email protected] Posts: 2, Reputation: 1
    New Member
    		  
    #3

    Jun 29, 2006, 02:31 PM
    Thanks. This helped.
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