How much is Federal and NJ state tax if you withdraw money from your 401k before you reach age 59?
The income tax rate depends on your tax bracket for the year that you withdraw the money. If, for example, you are in the 30% tax bracket, come tax time, the 20% withheld will not cover the actual taxes and you will owe an additional 10% in addition to the 10% penalty and 20% withheld. Similarly for the NJ taxes, you may have to claim the withdrawal as income and pay income taxes on the withdrawal.
Amount of tax to pay for 401K withdrawal?
401k distributions are taxed as normal income plus a 10% penalty if early withdrawal. Use the following calculator to estimate your earnings for the year with and without the 401k distribution and use that difference plus $3,000 for the early withdrawal penalty (if withdrawn before age 59 1/2) and subtract that from the amount withheld for federal income tax on the distribution. If the amount is negative, you will need to pay that much extra to cover the taxes for federal income taxes. http://www.dinkytown.net/java/Tax1040.ht... You will also have to pay extra to the state if there is a state income tax in your state.
In what state will my 401K withdrawal be taxed in?
Here's the definition of residency in Maryland from What is my Residency Status?Resident -Your permanent home is or was in Maryland (the law refers to this as your domicile). OR your permanent home is outside of Maryland, but you maintained a place of abode (that is, a place to live) in Maryland for more than six months of the tax year. If this applies to you and you were physically present in the state for 183 days or more, you must file a full-year resident return.Nonresident - Your permanent home (domicile) is in a state other than Maryland, unless you are a statutory resident. Statutory resident - You maintain and occupy a place of abode (that is a place to live) for more than 6 months of the tax year in Maryland.Part-Year Residents - If you either established or abandoned Maryland residency during the calendar year, you are considered a part-year resident.It really doesn't matter whether or not you establish residency in Florida - if you live in Maryland for more than 6 months of the year (which it sounds like you will this year), you are considered a Maryland resident. If you live there for less than 6 months you are a Part-Year resident.Frankly, this service you signed up for in Florida sounds like it is designed to enable you to commit tax fraud. I'm guessing that what the service does is technically legal, but how you are suggesting to use this service could certainly be very illegal. Do the right thing. Pay your taxes. Or, wait until next year to cash out your 401K when you can legitimately claim you were not a Maryland resident.
How much taxes can I expect to pay on a 401K withdrawal come next tax season?
If you roll the entire withdrawal amount (not just the amount of the check - they'll probably withhold taxes from that) into a traditional IRA or to a new employer's 401K within 60 days, your tax on it will continue to be deferred. But if you keep the money, you'll pay income tax at whatever your rate is, plus if you are under age 59-1/2, an additional 10% penalty for early withdrawal. So if you are in a 15% bracket and don't roll it into an IRA, and you are under age 59-1/2, then you'd pay 25% or $875 tax. The sales tax rate has nothing to do with tax on a 401K.
What is the 401k early withdrawal penalty?
Federal tax penalty is 10% if you withdraw before age 59 1/2 and do not qualify for a special exemption. There are usually additional state tax penalties as well. For example, California assesses an additional 2.5%.A common exception is if you terminate employment after age 55. The IRS acknowledges that you may need to tap into your retirement savings early in this case and waives the penalties. There are a bunch of other exceptions as well related to death, disability, etc…When you take a cash distribution from your 401(k), the company is only required to withhold 20% upfront in taxes. This means, you will likely get hit with additional taxes when you do your personal tax return. So, if you are considering taxing a withdrawal subject to the early withdrawal penalties, be sure to plan accordingly. Either request additional tax withholdings upfront or plan for the additional tax bill when you do your taxes next year.The 401(k) plan will send you a tax form (Form 1099-R) at the end of the year to report any distributions. If you think you qualify for an exemption from the early withdrawal penalty, review this form closely. 401(k) administrators often make mistakes in this area.
Is there a specific tax percentage you have to pay when you cash out a 401(k), or does it vary?
It varies depending on what you mean by "cash out."If you take an early withdrawal (other than a qualifying withdrawal/transfer) from a 401(k) you will pay a 10% penalty and be taxed at your marginal income tax rates on the amount withdrawn.When you begin withdrawing in retirement you will pay the current marginal tax rates on all your taxable income which includes the 401(k) withdrawals.The benefit of the tax-deferred 401(k) and IRA accounts is that many (most?) people have a reduction in taxable income upon retirement. This lower incme puts them in a lower marginal income tax bracket than during their working years. The second benefit is that a larger sum can be invested when pre-tax dollars are used and that allows commensurate larger returns.
Does the amount you withdraw from your 401k determine your income tax rate in retirement?
Excellent Question.They have a saying they teach US medical students:“If you hear hoof beats outside your window, don’t assume it’s a Zebra.”In other words, if the patient has a cough and a fever, start planning to treat Bronchitis or Pneumonia, rather than Dengue Fever.This adage applies to Retirement Planning. In the US, people who’s income is higher in retirement (than it was in their prime working life) are about as common as Dengue Fever victims.It is far better to plan for the likely scenario {i.e., when your salary stops…. you will earn less money] that your tax bracket will be the same or lower.Yes, it is sometimes true that someone’s bracket could be higher in retirement because:Warren Buffet is your dadYou are an unusually disciplined saver and investor with a very high incomeYou built a successful company—or a real estate portfolio—that will continue to pay you an increasing stream of income when you stop workingI have had a couple of retired clients in this situation and they are acutely aware of how unusual they are and seldom complain about the taxes. In the words of one client, their situation falls under the heading: “Fancy problem to have.”Here’s another thing Retirees never say: “I wish I’d spent more time at the office and saved less for Retirement.”Here’s the real message: for every person lucky enough to have retirement tax issues, there are 1000 who have “didn’t-save-enough” issues. A tax-deferred (aka, tradtional) 401k’s main virtue is that it makes saving more affordable and better enforced.This is vital, because $600k is not as much as you think. If your lifestyle costs $60k today, it will cost $200k in 40 years. That’s what you are up against.Re: your direct question:Yes, for most people, the money they withdraw from their non-Roth retirement accounts (IRA , 401k, 403b) will be a lot (or most) of their taxable income, since Social Security is taxed at a lower rate, or not at all. And, yes, $100k will be taxed at a higher rate than $30k (but unlike income from salary, there is no tax for fica, unemployment, etc.)
Should I withdraw funds from my 401K?
I messed up on my state taxes (OK) and now owe them about 800 dollars from last year. The payments they are requesting are going to put an extreme financial hardship on my income. I was thinking about just withdrawing the funds to pay it off from my 401K. I just started it less than a year ago and probably have just enough in there to pay my state tax debt. I'm not positive but I think my funds are taken out of my paycheck after taxes so I believe I wouldn't have to pay the tax on it next tax season. Also, my husband has a retirement plan. I could always continue with my plan, I would just be starting over.
What are the USA tax consequences on withdrawing money from Traditional 401K, Traditional IRA, Roth 401K when the person is a non-resident alien?
Here is a useful FAQ. Plan Distributions to Foreign Persons Require WithholdingThe traditional IRA or Traditional 401k was a deferral of taxation of US-based income until a future date. The US tax system treats a 401 K or IRA withdrawal as US-earned income of the amount of a withdrawal in the year you take the withdrawal.It is treated as ordinary income, not a tax-rate favored category like capital gains.So, you are in India, receiving income from the US, which the US expects to tax, and that India will consider of interest, possibly due to tax there, too.Skimming the FAQ, there may be an assumption that a good number of foreigners might ignore filing US income tax forms. As a result, a 30-percent withholding gets applied. You withdraw $10,000 US. You get a check for $7,000 and the IRS will let you calculate that $3,000 was withheld. If your effective US tax rate is less than 30 percent (very likely), you get an additional portion of that $10,000 withdrawal as a refund from the US treasury for your filed US return.India may tax income of its residents. In the interest of fairness, I would hope you would get a credit against the India tax due on the $10,000 income, for the foreign taxes paid on that amount.The Roth withdrawals are not US taxable, but seem to be India income. India law should realize that part of the Roth withdrawal was already taxed by a foreign country. But they may not treat the gain on the investment as tax free.E.g. Your Roth IRA was seeded with $5,000 5 years ago. Your tax rate was 20 percent, when you earned the money, so that $5,000 was after the taxes on $6250 earned that year. The account has $10,000 value when you withdraw.You need to discover how India treats the transaction. My feeling is that your India income is $5000, the amount your investment increased, since you started with $5000. India might accept the idea of a Roth IRA as foreign income 'already taxed'. But they could say that the lower effective rate does not cover all the India tax, so that additional tax is due.