Taxes on cashing in a 401(k)?

Question

I cashed in a 401(k) from a previous job back in January (2008). The amount was around 40K - how much will I owe in taxes - approximate guess? I know there is a 10% withholding that I will owe and it will depend on my tax bracket. How does that work with the IRS and when filing taxes, is there a payment plan that can be set-up to pay off taxes?

Answer 1

10% penalty plus income tax on the gross withdrawal as ordinary income.  Likely you will wind up with 60-70% of the gross amount after taxes.  The taxes will be due when you file your 2008 return next year.

Answer 2

too many variables for an easy answer.

it depends on what you make for the entire year of 2008, are you married or claiming any dependents, do you itemize your deductions, etc.

you want to get your taxable income as low as possible.

... but if you do end up owing when you file, the IRS will let you let up a "payment plan".

Answer 3

If you are under age 59-1/2 you'll owe a 10% penalty, which will be $4000, for cashing it early.  The income tax on it will depend on your tax bracket, on how much your taxable income is for the year, including the $40K wilthdrawal - if you are in a 15% bracket, that's another $6000.

If you can't pay all you owe when you file, yes you can set up a payment plan, but you'll pay fees and interest for the amount.