I was wondering if the taxes on 401k distributions was an approximate 28%, plus the 10% for not being 59 1/2?

Question

It's kind of hard to understand the taxes part of Merrill Lynchs' website. Not to mention I can't even get a hold of them to ask always on hold forever.

Answer 1

It depends on your other income.  If your other income puts you in the 28% bracket, then YES, that is accurate.  Also, if your state has an income tax, they will want part of it too.  California also has a 2.5% penalty if you are not 59 1/2.

It is common to say goodbye to 40% of your 401k if you cash it out early.  It should be regarded as a last resort, not a first option.

Answer 2

People lose approximately 40% of their 401(k) to penalties, taxes, and fees if they withdraw the money prior to age 59 1/2.  You don't say why you are removing the money, but you should explore other options first rather than a 401(k) withdrawl.

Answer 3

There is NO actual rate for distributions form 401(k) plans.  You add that amount to your other income and pay the same rate you would have if you were paid that much more at your job.  If you are in the 10% tax bracket, you would pay 10% (on top of the penalty).  If you are in the 34% tax bracket, you would pay 34%.  If you withdraw a large enough amount, you are likely to 'straddle' 2 tax brackets.  That means part would be taxed at your current rate, and the amount above what moves you to the next higher bracket would be taxed at that rate.