Do I have to pay taxes if I cashed out my 401k because my employer went bankrupt?

Cashing out my 401k balance was my only option at that moment, and even though I cashed it out, I still had to pay taxes then, and it looks like I have to pay extra taxes now.

posted

Unfortunately, yes. You had the option of rolling it over within 60 days or keeping the distribution. The tax taken out on your 1099-R may or may not cover the tax. It is a flat amount. If you had an early distribution penalty, then there is 10% of your withholding that goes toward paying that. The other 10% goes toward Federal tax. If your tax bracket is higher than 10%, it would not be sufficient.