401K withdrawal Retirement tax question

[kpjoz66]

The company I work for is selling to another company on October 1, 2019. I have a 401K with the current company. I am 66 years old and plan to retire the end of May 2020. I will have the opportunity to withdraw my 401K OR roll over into the new company's 401K program. We currently have our home for sale as we plan to move to a southern state at my retirement. I want to withdraw part of my 401K funds to purchase our new house in the new state. What might I expect to pay in taxes by withdrawing $100,000 from my 401K during this company change. I intend to put the remainder of my funds into an IRA at my local bank until full retirement next year.

[Critter]

This is impossible to answer since you didn't give enough information but expect to pay 30% or more to taxes if you do it this way.   If you just need some time between the sale of your current home and the purchase of the other you may want to take out a short term loan or mortgage to bridge the gap then pay it off when the old home sells.  Taking a large sum from a retirement plan is the last thing you want to do if you have other options available to you that are much cheaper.  Seek local professional guidance from a financial advisor and/or a mortgage broker. 

[kpjoz66]

When you said 30%, would that be Federal AND State total, or just Federal?

[macuser_22]

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@kpjoz66 wrote:

When you said 30%, would that be Federal AND State total, or just Federal?

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A 401(k) is taxed as ordinary income.   The amount of Federal tax depends on what your marginal tax rate might be (usually the tax bracket that your will be in).  That depends on all of your other taxable income in addition to the 401(k) distribution.

Without knowing all of your other income, and tax rate, there is no way to give an accurate answer.

State tax will be additional depending on the state tax rates.

[kpjoz66]

I believe what I need to do is take only what I have to for my down payment on the new home in Alabama. I will be working full time up until I retire on 5/29/2020, so I will keep the majority of my 401K money in an IRA until next year when my income will be less than 2019. Thank you to those who answered.

[macuser_22]

@kpjoz66 - Note that if the money is still in your 401(k) then there is no "first home owners" exception to the early distribution  penalty for a 401(k).   It you first roll the 401(k) into an IRA and then withdrew the money from the IRA the then up to $10,000 can be applied to a first home without the 10% early distribution penalty.

[Carl]

If you live in a state that taxes personal income, and you plan to move to Florida which does not tax personal income, I *HIGHLY* suggest you do whatever it takes to hold off taking *ANY* retirement distribution, to include taking out a mortgage to bridge the gap.

Once you have firmly established your residency in FL, you won't have to pay state taxes on your retirement fund withdrawals.

So is FL where you're looking to move? If so, what state will you be leaving? Being in FL myself, I may be able to help you start the FL residency process before you even get here.