i am 56, I plan to cash out my K401 from my previous employer. I am still working for a new company. Do I have to pay early penalty (subject to income tax etc)?
How long ago did you leave the old employer that has the 401K? I believe you avoid the 10% Early Withdrawal Penalty if you were 55 or older when you left the company, not when you take the withdrawal.
Even if you avoid the penalty you still owe tax on it.
You don't actually pay the tax or 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You have taxes withheld like from your paycheck. You still have to enter the whole gross original amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due.
It has to break out and show the 10% penalty separately on your return, (Schedule 4 line 59 which goes to 1040 line 14)
Then you get credit for all the withholding taken out on 1040 line 16.