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DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 794
Experience:  CPA experienced in tax and financial planning
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What are the penalties when you change jobs and cash in your

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What are the penalties when you change jobs and cash in your 401k in the state of New Mexico? My age is 56 yrs old. Thank you.
Welcome and thanks for your question!

If you made traditional (pre-tax) 401k contributions, your 401k distributions will be taxed at your ordinary income tax rate at both a federal and state level. Because you are over age 55 and you left your job, the additional 10% penalty tax does not apply.

If you do not foresee the need for the cash in the foreseeable future, I suggest you look into rolling over the funds into an IRA to avoid taxation. Even if you have already received the money, as long as you deposit it into an IRA within 60 days, it won't be considered a taxable distribution.

Please let me know if you need any additional assistance. Thanks and have a wonderful night.
DanielleCPA and other Finance Specialists are ready to help you
I just wanted to add one more thing. If you do decide to roll over the money into an IRA and you need to make withdrawals before age 59 1/2, the 10% penalty will apply. If you think you will need to withdraw only small amounts before age 59 1/2, it may still make sense to roll over the money because most of it will wind up penalty free.