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NJ-Security
New Member

Do you have to make estimated payments on a 401K hardship withdrawal if no taxes were withheld? I want to avoid any penalty for not paying estimated taxes on time.

If I do not withhold taxes from the 401K hardship withdrawal, will I be penalized for not making estimated taxes on the hardship withdrawal that get included as income.

1 Best answer

Accepted Solutions
TomYoung
Level 13

Do you have to make estimated payments on a 401K hardship withdrawal if no taxes were withheld? I want to avoid any penalty for not paying estimated taxes on time.

That a question that's really impossible for anybody to answer with a "Yes" or "No".

There's really no penalty expressly for "not paying estimated taxes on time"; you can pay taxes "on time" and get hit with an underpayment penalty, or you pay estimated taxes "late" and not get hit with an underpayment penalty.  This all comes down to "facts and circumstances", and nobody here knows your facts and circumstances.  You really have to crunch some numbers to make an informed decision.  Understand that simply owing the IRS a lot of money when you prepare your income tax return isn't necessarily a bad thing.  As long as you're not underpaid your payment to them won't include an underpayment penalty, just the taxes you owe.

Most people will avoid being "underpaid" if:

1)owe less than $1,000 in tax after subtracting their taxes WITHHELD and available tax credits,

OR

2)if they paid at least the lesser of
          a)90% of the tax for the current year, or
          b)100% of the tax shown on the return for the prior year.  (If last year's return shows AGI over $150K (for married filing jointly) then change that "100%" figure to "110%.)

So the exercise, obviously, is to crunch the numbers and see if the withholding during the year, (assuming no estimated tax payments have been made), can get you into one of these "safe harbors."

If this is a 2018 transaction you're contemplating then there is a TurboTax interview that will help you here, the "W-4 and estimated taxes" interview.   In that interview you enter your best guesses as to what 2018 will look like and TurboTax will calculate estimated taxes, if any are needed.

If you don't want to go through all this and/or you just want to minimize what you'll owe at tax time, then take that distribution, multiply it by a "marginal tax rate" - maybe 10% to 20% depending? - divide that amount by the remaining quarters of estimated taxes due and send that amount in with each due date.  You probably will have to do the same for state taxes, too.

Tom Young


View solution in original post

2 Replies
TomYoung
Level 13

Do you have to make estimated payments on a 401K hardship withdrawal if no taxes were withheld? I want to avoid any penalty for not paying estimated taxes on time.

That a question that's really impossible for anybody to answer with a "Yes" or "No".

There's really no penalty expressly for "not paying estimated taxes on time"; you can pay taxes "on time" and get hit with an underpayment penalty, or you pay estimated taxes "late" and not get hit with an underpayment penalty.  This all comes down to "facts and circumstances", and nobody here knows your facts and circumstances.  You really have to crunch some numbers to make an informed decision.  Understand that simply owing the IRS a lot of money when you prepare your income tax return isn't necessarily a bad thing.  As long as you're not underpaid your payment to them won't include an underpayment penalty, just the taxes you owe.

Most people will avoid being "underpaid" if:

1)owe less than $1,000 in tax after subtracting their taxes WITHHELD and available tax credits,

OR

2)if they paid at least the lesser of
          a)90% of the tax for the current year, or
          b)100% of the tax shown on the return for the prior year.  (If last year's return shows AGI over $150K (for married filing jointly) then change that "100%" figure to "110%.)

So the exercise, obviously, is to crunch the numbers and see if the withholding during the year, (assuming no estimated tax payments have been made), can get you into one of these "safe harbors."

If this is a 2018 transaction you're contemplating then there is a TurboTax interview that will help you here, the "W-4 and estimated taxes" interview.   In that interview you enter your best guesses as to what 2018 will look like and TurboTax will calculate estimated taxes, if any are needed.

If you don't want to go through all this and/or you just want to minimize what you'll owe at tax time, then take that distribution, multiply it by a "marginal tax rate" - maybe 10% to 20% depending? - divide that amount by the remaining quarters of estimated taxes due and send that amount in with each due date.  You probably will have to do the same for state taxes, too.

Tom Young


NJ-Security
New Member

Do you have to make estimated payments on a 401K hardship withdrawal if no taxes were withheld? I want to avoid any penalty for not paying estimated taxes on time.

Thank you.  I'm looking to take the hardship this year for a house purchase.  I think I will be ok without paying estimated taxes in 2018.  My salary is such that taxes paid have been consistently above the prior year, and expect to pay at least 100% of the prior year tax.  $50,000 hardship withdrawal is what I'm looking to take, and I rather save up for my tax obligation, then to take additional funds for taxes.
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