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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
We just want to know if we have to pay taxes on the early WITHDRAWL penalty fees even though this is money we never saw at all.
posted
June 4, 2019
4:03 PM
last updated
June 04, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
When you make a withdrawal from a 401k, you pay ordinary income tax on the total amount of the withdrawal. You also pay a penalty of 10% of the total amount of the withdrawal. The fact that you did not get the amount withheld for tax as cash in hand does not matter. Any amount withheld was used for your benefit - it was withheld to pay the tax that you owe on the total withdrawal. That is the tax law.
When you report the withdrawal on your tax return, the total amount of the withdrawal is added to your other income and is taxed at whatever your marginal tax rate is. The 10% penalty for early withdrawal is added if appropriate.
You get full credit for any tax withheld, so you are not taxed twice, only once accurately.
When you report the withdrawal on your tax return, the total amount of the withdrawal is added to your other income and is taxed at whatever your marginal tax rate is. The 10% penalty for early withdrawal is added if appropriate.
You get full credit for any tax withheld, so you are not taxed twice, only once accurately.
June 4, 2019
4:03 PM
8 Replies
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
Where did it go? Why didn't you see it? What did you do with the withdrawal?
June 4, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
I don't need a smarta** remark. I'm asking about the penalty fees ONLY. Not the WITHDRAWL money. If you can't answer in a respectful way then refrain from answering at all. The fees. Read the question. The fees. Only the fees. Get it? I understand why the fees were taken out. I'm wondering if they are taxed as income.
June 4, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
It depends on what you asked the custodian to do. take the fee as a separate transaction.
or take the fee out of your distribution.
If the latter, you will pay tax on the fee.
or take the fee out of your distribution.
If the latter, you will pay tax on the fee.
June 4, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
I think he may be asking these questions because sometimes people mistake fees for things which are not fees, and since he cannot see your return he cannot be sure if you are entering your information from a Form 1099-R or are entering information from another document source which could be the wrong thing to do. Some mistakes which could happen if you do not use a Form 1099-R that I have seen are taxpayers who work for a company and see $10,000 in their 401(k), however, only $7,500 of the account is "vested." This happens when a company makes matches to your contributions, but you are not entitled to them unless you are there for so many years. If you liquidate your 401(k) in my example, you would get $7,500 (or really 7,500 minus the 20% withholding). If you did not have your Form 1099-R, I have seen people put in $10,000 for distribution, while only getting 7,500 and assume that they must be paying fees when they are not. They were just not entitled to the other 2,500 at the time of liquidation, and if they waited the 1099-R would have listed a distribution of 7,500 instead of 10,000. You may need to answer the individuals questions if you require help, as 401(k) do not normally have fees anywhere near the magnitude of the fees listed.
Now my example may not apply to you, as it was just an example of some common mistakes people make. Also, you used the term early withdrawal penalty fees. Are you referring to the 10% fee for taking money out prior to your 59 1/2 birth year, as this is a penalty imposed by tax law and not imposed by your administrator of your 401(k)? While not divulging too much information, if you have a 1099-R, what does your box 1 amount say approximately, what is and taxes were withheld? If you truly had a 401(k) fee who imposed it and was it part of your 401K prospectus, as I said the magnitude is extremely high which makes me think there is some confusion? If you were fully vested and had 100,000 in your account, you might only get 80,000 as the other 20% would be withheld for taxes. However, the plan administrator would correctly list 100,000 as distributed to you, as you received 80,000 of it and in actuality you did received the other 20,000 however, it was sent to the IRS as an estimated payment on your behalf. So if you are taxed on the 100,000 @25% your tax would be 25K, but you would have a 20,000 withholding already paid so you would only pay an additional 5K in tax and NOT be double taxed. I left off any 10% penalty in this last example.
Now my example may not apply to you, as it was just an example of some common mistakes people make. Also, you used the term early withdrawal penalty fees. Are you referring to the 10% fee for taking money out prior to your 59 1/2 birth year, as this is a penalty imposed by tax law and not imposed by your administrator of your 401(k)? While not divulging too much information, if you have a 1099-R, what does your box 1 amount say approximately, what is and taxes were withheld? If you truly had a 401(k) fee who imposed it and was it part of your 401K prospectus, as I said the magnitude is extremely high which makes me think there is some confusion? If you were fully vested and had 100,000 in your account, you might only get 80,000 as the other 20% would be withheld for taxes. However, the plan administrator would correctly list 100,000 as distributed to you, as you received 80,000 of it and in actuality you did received the other 20,000 however, it was sent to the IRS as an estimated payment on your behalf. So if you are taxed on the 100,000 @25% your tax would be 25K, but you would have a 20,000 withholding already paid so you would only pay an additional 5K in tax and NOT be double taxed. I left off any 10% penalty in this last example.
June 4, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
Oh you mean the plan charged you a penalty for taking it out? That is different than the 10% early withdrawal penalty on your tax return. You have to pay tax on the full gross amount before the plan took their penalty out.
June 4, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
When you make a withdrawal from a 401k, you pay ordinary income tax on the total amount of the withdrawal. You also pay a penalty of 10% of the total amount of the withdrawal. The fact that you did not get the amount withheld for tax as cash in hand does not matter. Any amount withheld was used for your benefit - it was withheld to pay the tax that you owe on the total withdrawal. That is the tax law.
When you report the withdrawal on your tax return, the total amount of the withdrawal is added to your other income and is taxed at whatever your marginal tax rate is. The 10% penalty for early withdrawal is added if appropriate.
You get full credit for any tax withheld, so you are not taxed twice, only once accurately.
When you report the withdrawal on your tax return, the total amount of the withdrawal is added to your other income and is taxed at whatever your marginal tax rate is. The 10% penalty for early withdrawal is added if appropriate.
You get full credit for any tax withheld, so you are not taxed twice, only once accurately.
June 4, 2019
4:03 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
My income tax was a very low amount and it just seems like I paid taxes on it twice because they took taxes out before I got the check and then when I entered it on my taxes my refund amount dropped all the way down.
April 14, 2022
3:28 PM
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Must we pay taxes on 401(k) EARLY WITHDRAWL FEES? This is $ we never received but is it still claimed as income & taxed? I'm looking at approx. $34,000 in fees...?
"they took taxes out before I got the check"
you have to report this amount on your tax return to get credit for it.
It may not have been enough.
April 14, 2022
3:30 PM
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