I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?
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tetimmons114
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

"I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?"
16 Replies
re2boys
Level 9

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

The 20% withholding on your 401k distribution is just an ESTIMATE of the taxes you may owe due to this distribution.  At the end of the year, you make a final accounting with the IRS and if you overpaid your taxes, you get a refund, or possibly underpaid and owe the IRS.  The 401k distribution gets added to your other income and the total tax obligation is calculated.

There is also an early withdrawal penalty of 10% unless you meet specific criteria, the software should step you through the exceptions to this penalty.

In the end, the total taxes on an early 401k distribution can range from zero to 40+ percent depending upon your total income, marital status, dependents, and exceptions to the early withdrawal penalty.  There is no set tax rate on this distribution.

brighthuff
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

I was told that this was already taxed and more than 10% came out of the distribution. Why am I being taxed again? I'm taking into account the penalty AND the taxed amount. I do not understand why this is included on my tax return as it was already taxed when I took it out.
pbergman9
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

One of the reason I asked for an extension on my turbo tax account : 1.  On my federal return, I paid the income tax of the amount taken out when it was dispersed to my eldest son whom the money was directly deposited into his school account for tuition expenses, only.  Why is my return being held up as the online efiling method appears to think I took out the money to just spend.   Why would I take out an early withdraw, pay 472.22 in taxes, and just spend it on myself ? Not the way I did it.  .
re2boys
Level 9

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

You spent it on your son.
Anonymous
Not applicable

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

your software does not take into account that the taxes a person takes out are more than 10% you just add a 10% penalty no matter what.  you are changing my tax rate not the federal government.
Anonymous
Not applicable

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

these answers are simple and provide no information.
rwsubers
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

I am curious on this too, I already paid the taxes on this and I have to pay additional taxes?
re2boys
Level 9

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

You did NOT pay the taxes, you paid an estimated withholding, just as you do each week out of your paycheck.  Now you provide a final accounting to the IRS....maybe get a refund, maybe owe!!
Anonymous
Not applicable

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

I did pay the taxes, in fact I paid more than 20% and you are not paying more taxes you are paying a $3000 penalty even though I paid my taxes up front.  There is a difference.  You should read the fine print.
christina1
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

I already withheld 30% from a early 401k withdrawal I made this year (I am under 59 and a half), and turbotax is also stating I owe another 10% for the penalty. But that has me paying a total of 40%, which if you take out the 10% early WD penalty puts me paying 30% income tax, but I am Not in the 30% tax bracket!  I am at a lower tax bracket.
re2boys
Level 9

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

Read the original answer above.
christina1
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

That doesn't help. I had them withhold 30%, now TurboTax is stating I owe another 10% for the penalty. That's 40% total. That means I am paying at a 30% tax rate on the funds but I am nowhere near the 30% tax bracket according to the IRS tax bracket table. I understand the penalty has to be paid but the 30% I had them withhold should have covered most of that.
ssessanna
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

I need to look into this too as I am very upset about it....I withdrew 20k and had them withhold 6k and there's a 20% penalty, making it 8k, but it also reduced my money back by another 1500 for some reason so it looks like on a 20k withdrawal, I am losing almost 10k of it!!
sandraf1
New Member

I had early withdrawal on a 401-k paid the taxes and now I am pay more taxes. Why am I paying more in taxes? Is it 20% instead of 10%?

I would like more info on this also. I will probably call the IRS before e-filing with Turbotax. The withdrawal was 3322 and 664 federal withheld which is 20%. Turbotax software says I now owe another 10%, 332, in taxes.  I don't think this is right because an article at the link below says this,"That penalty is on top of income taxes that need to be paid on a withdrawal. For someone in the 15 percent tax bracket, the added penalty could mean a QUARTER of the amount withdrawn will be eaten up by taxes and the penalty." This statement is correct because 10+15 is 25(quarter), so why is TT taking an additional 10% if the person knows that the 10% penalty plus his/her tax bracket is less than this?

<a rel="nofollow" target="_blank" href="http://money.usnews.com/money/retirement/articles/2015/07/16/5-things-to-know-about-withdrawing-mone...>
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