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Kitty2928
New Member

401K Withdrawl, Calculating Taxes

I'm needing to make a withdraw from my 401K with my company (last resort).  I know I have to pay the automatic 10% penalty but I'm trying to figure out how much to put aside for taxes on my income tax return.  I'm trying to stay in my current tax bracket.  My question is.....should I be figuring it out against my total gross or taxable gross?  I'm under 50 so no where close to retiring.

4 Replies
rjs
Level 15
Level 15

401K Withdrawl, Calculating Taxes

Try using TaxCaster to estimate your tax.


TaxCaster


You could first enter all your income except the 401(k) withdrawal, and see how much the tax is. Then add the 401(k) withdrawal and see how much the tax goes up.


The withdrawal is just more ordinary income. Your tax bracket depends on your taxable income, which is Adjusted Gross Income (AGI) minus deductions.

DanielV01
Employee Tax Expert

401K Withdrawl, Calculating Taxes

And from the 401(k) withdrawal itself account for an additional 10% tax penalty unless you have an exception to the penalty.  You also want to account for state (and perhaps local) tax as well if your state (and locality) also might tax a 401(k) withdrawal

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JAIA
Level 1

401K Withdrawl, Calculating Taxes

@DanielV01 Hi, I'm sorry for jumping in on someone else's post, but I have a similar question. Due to my employer being bought by different company, I will be rolling over a portion to new employer's 401(k) plan and cashing out some. They will withhold 20% federal and 7% state. Then I have to pay the 10% penalty. I'm using the Tax Withholding Estimator on the IRS website to help with what I may owe. In the estimator, I entered the amount of cash ($17,000) I'm getting from my 401(k) as income and it came up with what I will have to pay in 2021 for 2020 taxes if I keep my current with holdings. Do I add the 10% penalty ($1,700) onto the amount that the IRS calculator shows that I will owe? I need to figure out how much more I need to withhold from my paychecks so that I won't owe as much when it comes to filing taxes in 2021. Thank you in advance for your help! I use Turbo Tax so I don't have the option of going to a local CPA to ask.

AnnetteB6
Employee Tax Expert

401K Withdrawl, Calculating Taxes

@JAIA

 

Yes, you should add the 10% penalty to the amount of tax that the calculator shows that you owe.  Unless the tax calculator allowed you to specify that the additional income was due to an early withdrawal, the calculator would not know to include the penalty in the total expected tax amount.

 

 

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