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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3039
Experience:  I've prepared all types of taxes since 1987.
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I am implementing a total distribution of my 401k. Current

Customer Question

I am implementing a total distribution of my 401k. Current balance is approx 80k. I am trying to determine/calculate the total loss of funds I will incur. Correct me if I am wrong but--
-Right off the top is 20% for Federal.
-10% early withdraw from New York State [Total so far 30%].
I then must add the cash out $$ amount to my annual income [married-filed jointly--mine 66k----Wife 15k].
This puts me in a higher tax bracket etc.

Please help me determine what total penalties/losses will be and how much the tax dollar amount will be for my 2013 tax filing.
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.

Greetings,

 

The 20% is withholding for federal income tax so that is not the actual amount of tax that will due on the 80K.

 

Income for a married filing joint couple of 66 + 15 + 80 is 161K total. Less about 20 for deduction and exemptions is 141 taxable income. Estimated federal income tax is about 27,100 plus 10% penalty on 80K of 8K is total federal estimate of 35,100.

Used the tax rate schedule from http://www.forbes.com/sites/kellyphillipserb/2013/01/15/irs-announces-2013-tax-rates-standard-deduction-amounts-and-more/

 

For New York State with federal taxable 141 state income tax is about 146500 NY taxable (different deduction and exemption total of about 14500).

Estimated state income tax of about 8800

Used the tax rate schedule from page 8 at.tax.ny.gov/pdf/current_forms/it/it2105i.pdf

 

As mentioned you will have 16000 federal withheld to help toward the expected 35K federal income tax.

Most plans will also withhold state income tax (but you should check with the plan).

 

Unless you absolutely need all of the money this year you may want to consider moving the 401K via transfer to an IRA and then taking out of that IRA only the amount as needed this (and later) years to avoid having such a large amount of tax in one year.

 

Please ask if you need more discussion or clarification.

Thank you.

Customer: replied 1 year ago.


My apologies, but the response is very confusing to me..


 


botXXXXX XXXXXne--what will the cash out check be--with all the penalties/exemptions/taxes?


 


secondly when receiving a cash out check what will i have to keep to cover nys tax in April 2013.


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


ith all exemptions etc from the cash out of 401k be in my bank account?

Customer: replied 1 year ago.

My apologies, but the response is very confusing to me..


 


 


botXXXXX XXXXXne--what will the cash out check be--with all the penalties/exemptions/taxes?


 


 


 


secondly when receiving a cash out check what will i have to keep to cover nys tax in April 2013.


 


please send response toXXX@XXXXXX.XXX

Customer: replied 1 year ago.

am implementing a total distribution of my 401k. Current balance is approx 80k. I am trying to determine/calculate the total loss of funds I will incur. Correct me if I am wrong but--

-Right off the top is 20% for Federal.
-10% early withdraw from New York State [Total so far 30%].
I then must add the cash out $$ amount to my annual income [married-filed jointly--mine 66k----Wife 15k].
This puts me in a higher tax bracket etc.
Please help me determine what total penalties/losses will be and how much the tax dollar amount will be for my 2013 tax filing.

 

Optional Information:
Country relating to question: United States
State (if USA): New York

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Expert

You have received an Answer!

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Greetings,

 

The 20% is withholding for federal income tax so that is not the actual amount of tax that will due on the 80K.

 

Income for a married filing joint couple of 66 + 15 + 80 is 161K total. Less about 20 for deduction and exemptions is 141 taxable income. Estimated federal income tax is about 27,100 plus 10% penalty on 80K of 8K is total federal estimate of 35,100.

Used the tax rate schedule from http://www.forbes.com/sites/kellyphillipserb/2013/01/15/irs-announces-2013-tax-rates-standard-deduction-amounts-and-more/

 

For New York State with federal taxable 141 state income tax is about 146500 NY taxable (different deduction and exemption total of about 14500).

Estimated state income tax of about 8800

Used the tax rate schedule from page 8 at.tax.ny.gov/pdf/current_forms/it/it2105i.pdf

 

As mentioned you will have 16000 federal withheld to help toward the expected 35K federal income tax.

Most plans will also withhold state income tax (but you should check with the plan).

 

Unless you absolutely need all of the money this year you may want to consider moving the 401K via transfer to an IRA and then taking out of that IRA only the amount as needed this (and later) years to avoid having such a large amount of tax in one year.

 

Please ask if you need more discussion or clarification.

Thank you.

You replied

Sunday, September 22, 2013 9:46 PM EST


My apologies, but the response is very confusing to me..

 

botXXXXX XXXXXne--what will the cash out check be--with all the penalties/exemptions/taxes?

 

secondly when receiving a cash out check what will i have to keep to cover nys tax in April 2013.

 

relist:Other.

 

requesting simplified answer if i cash out 401k with balance of 80k what will be the check payout amount sent to me. What other deductions will be made so i can determine the $$$ amount I can safely use but keep a reserve to cover nys taxes in April 2013

Expert:  jgordosea replied 1 year ago.

Your check will be the 80K less 20% or 64K unless there is also state tax requested (but that varies with your plan so you have to ask.)

 

Your total tax for federal will be about 35,100

So you will need about 19,100 form other withholding or payment before or with the return.

 

Your total NY estimate is 8800 for the year.

That will have to be withheld or paid in as you arrange.

 

You can take the withholding and payments already in for this year and subtract from 8800 to get how much more NY state will need to be paid.

 

Hope that helps to clarify. Please rate again or let me know what you need to make it okay service or better.

Customer: replied 1 year ago.

Closer to understanding thank you.


My apologies, still not comprehending


 


"your total tax for federal will be about 35,100 So you will need about 19,100 form other withholding or payment before or with the return."



I'm not grasping on 80k how much money will I actually be able to use safely on this cash out?



I was figuring 40% of 80k would be sufficient to do this distribution and not be in a jam at tax time.

Expert:  jgordosea replied 1 year ago.

Hello again,

 

The check will be for 64K.

 

There will be total of about 35K federal tax due on your return of which 16K will be withheld from the check.

You will have to see how much withholding you and your wife have from your wages (or expect to have at year end) to know how much of the 64 K can be spent or needs to be used for taxes.

 

Take 19K and subtract what you will have withheld for federal other than the distribution such as from your wages. That difference is the federal tax you will still need.

For example if you have 10K from your wages taken out for federal tax then you only need another 9K (19K -10K) for tax and the balance of 55K (64K-9K) of the distribution check can be used as you like.

 

In that example you can use 55K of the 64K check.

If you will have less than 10K withheld from your wage checks then more would be needed and less than 55K could be spent.

 

40% of 80K is 32K and that would leave 48K to spend from the distribution.

It seems that may be enough since your federal tax of about 35K plus state tax of about 9K is 44K so you need another 12K tax paid in somehow.

You will have your usual taxes taken from your wages to help get the 44K total tax paid in.

So, you can plan to spend a bit less than 60% of the distribution but just how much depends on the amount that will be kept from your wages for taxes.

 

Please continue to ask until you have good service and then rate again, thanks.

 

 

 

 

 

 

 

 

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