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Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3152
Experience:  EA, CEBS - 35 years experience providing financial advice
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my son is leaving his job of 18yrs for a lower paying job,what

Resolved Question:

my son is leaving his job of 18yrs for a lower paying job,what tax will he pay for taking his 401k and using it for living expenses
Submitted: 8 years ago.
Category: Tax
Expert:  Bill replied 8 years ago.

If he takes a lump sum distribution it will be added to his other income for the year and taxed at his tax bracket which is based on his taxable income after adjustments, deductions, and exemptions. For example, if he is single, the lump sum amount is $45,000 and his other income for the year is $40,000 then he would have to pay approximately $10,000 (25%) in federal income taxes on the lump sum amount. If he leaves his company prior to age 55 then there would be an additional penalty tax of $4,000 (10%). In addtion, there may also be state income taxes.

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