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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I recently left my job of 4 and 1/2 years and started working

Resolved Question:

I recently left my job of 4 and 1/2 years and started working for the Federal government. I am in the process of either rolling over or taking a distribution of the funds for my traditional 401k and roth 401k. If I decide to take the cash distribution, what would be the breakdown of taxes taken out of both? I also live in VA, so if that can be accounted that would be helpful.

Also, would taxes differ for the traditional 401k and roth 401k, or because they are in the same account from my previous employer, would they be taxed on the total?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

If you are under 59.5, you will have a 10% across the board tax on your 401(k) distribution.

Megan C :

It's actually a penalty, but you pay it on your tax return

Customer:

Hi Megan, I am well, thank you!

Megan C :

I'll need to know how much you're taking out, and what your other income is

Megan C :

and your tax filing status and any dependents you have

Customer:

Outside of the 10% across the board penalty, would there be a Federal tax and a state tax on the cashout as well?

Megan C :

Yes, from the traditional most definitely and from the Roth you would have tax on the earnings portion

Customer:

no dependents, I am single so I only claim myself

Megan C :

And how much are you looking to cash out? And what is your other income?

Customer:

Currently I am at $51,000 income level at my new job. Total balance from my 401k (traditional and roth included as well as the employer match is $17,938.66)

Megan C :

For simplicity sake, let's calculate tax on the entire withdrawal. Keep in mind that your Roth contributions will not be taxed as income, only the earnings from that and you won't know the breakdown until you get your 1099-R

Customer:

I feel because I am still young and on the Federal government retirement system, this would not be a huge hit over my lifetime. My thoughts at least, I do not know what the math would be behind any cash out of my old policy

Megan C :

I personally wouldn't cash it out because it is very expensive.

Customer:

ok, I am listening

Megan C :

You lose a lot of money to taxes and penalties

Customer:

ok. what would the math look like for a total withdrawal?

Megan C :

You are in the 25% tax bracket, so you would owe 10% plus an additional 25%

Megan C :

And that's just federal.

Megan C :

That's $4,500 plus $1,800

Customer:

another 5.75% based on VA taxes then I am guessing as well on top of that

Megan C :

Yes, that is correct.

Megan C :

That's another 1,035

Megan C :

so that's $7,335 of taxes and penalties

Megan C :

or roughly 40%

Customer:

If I rolled over to my federal govt, TSP, is there any way to know potential total lost for future earnings?

Megan C :

If you roll it over, you won't lose anything.

Customer:

Or is that too difficult to determine because of fluctuating percentage changes?

Megan C :

Yes, that would be too difficult to determine

Customer:

Ok. If it is cashed out are the taxes applied immediately, or does that get completed during tax season in the spring?

Megan C :

The plan administrator typically does a withholding.

Megan C :

I'm not 100% sure on state, but I know they do federal

Customer:

ok. Well, I think that pretty much answers all of my questions.

Customer:

Thank you for the help and the tax lesson!

Megan C :

No problem

Megan C :

If you would, please take a moment to rate my response as "Excellent" so that I may receive credit for assisting you today

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 2 other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thanks, David for your positive rating. Please come back and visit me any time you have a tax, finance, or social security question. It was a pleasure working with you today.

In the future you may receive a short survey. Your positive feedback on that survey would be greatly appreciated, as it will assist me with rankings on the site. Thanks again for being a valued JustAnswer.com customer.

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Megan C
Megan C
Tax Professional
15587 Satisfied Customers
Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level