401 K ????

[ghcoughlin]

Hi There DH's company was just sold.His 401K is being terminated.If we choose not to roll it over does anyone know the penalties??
Thanks Heidi

 

[Kirk]

20% tax + 10% pen

 

[ghcoughlin]

WOW that was fast for a reply

Thanks alot!!
Heidi

 

[Toby'sFriend]

They will withhold the 20% tax plus a 10% penalty on the distribution.

The actual tax that you will owe will be your tax bracket plus the 10% penalty. So, if your marginal federal income tax is greater than 20% -- you could end up paying even more when you submit your 2003 tax return.

 

[HuggaBaloo]

Heidi, the way I understand it the 10% penalty would only apply if your husband was not age 59 1/2 at the time of the distribution (since it is an early withdrawal penalty). I know this is usually the case when someone takes a lump sum distribution, but I just wanted to throw that out there in the event this applies to your situation or someone else who may be reading.

 

[DonnaS]

And don't forget the "penalty" of what it can do to your quality of living once you do retire.

Bad move to cash out a 401K.

 

[Dan Murphy]

The above, plus the state income tax, if there is one in your state. So it is federal tax, taxed at your tax bracket, state tax, plus 10%, if under 59 1/2.