401k distribution

[LuvMyBugs]

Hi, 

The company I worked for for the past 23 years closed with no notice in February.  As a result,  they also closed our 401 accounts. Because I am over age 65, I cashed out and took the proceeds to pay off our bills.  I am now concerned about the tax liability (a little late, i know) They withheld 20% for taxes. Question, is TurboTax able to figure taxes for the different brackets automatically? Would you be able to confirm that I am not overpaying or underpaying my taxes?

[Paul_W1]

Hi LuvMyBugs

You will receive a 1099-R with the distribution in Jan 2023.  As far the tax calculation, turbo tax can calculate all the income.  Based upon your information, you are providing just the 401k.  If there are other income to report then the total income will need to be reported.  Fyi, 20% is the IRS default for all tax withholding from 401k accounts.  This link below called taxcaster can provide an estimator of refund or balance due for 2022.  Hope this helps.  Happy holidays.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[emina]

Hi! Happy to assist!

The good news is that, since you are over the age of 65, there will be no 10% penalty on your withdrawal. Another good news is that you had 20% federal tax withheld.

401k distributions are taxed at ordinary income tax rates. 

Since you have decided to take the full amount all at once, depending on the amount, you will be taxed based on your total income (401k distribution plus any other income entered on your return) tax bracket. 

Here is the info from the IRS website:

Marginal Rates: For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).

The other rates are:
35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
32% for incomes over $170,050 ($340,100 for married couples filing jointly);
24% for incomes over $89,075 ($178,150 for married couples filing jointly);
22% for incomes over $41,775 ($83,550 for married couples filing jointly);
12% for incomes over $10,275 ($20,550 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).

If based on the info above your total withholding is enough for your tax bracket, you would be fine. If the distribution amount is significant, and the 20% withheld falls under the tax bracket, you might have a tax due. Here is a tool you can use to estimate your tax: Taxcaster

When entering your 1099-R in TurboTax showing the distribution and taxes withheld, yes, the software will be able to automatically calculate the tax owed or any refund due.