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I cashed out my 401k. The taxes and penalties were withheld - will I have to pay additional income taxes?

My position was eliminated, and I wasn't allowed to keep my 401k balance in their plan. I withdrew it and had them withhold taxes and penalties before I got my balance. If I don't roll it over into a new plan, I just need to know if I'm going to have to dish anything out next year at tax time..

Mar 02, 2016 by Ryan in  |  Flag
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Hi Ryan, Sorry to hear about your job loss. Your answer simply depends on what your tax bracket is. Your employer should have withheld 20% for federal and 2-8% for state taxes (depending on your state). There is also a 10% penalty that is due if you cash out before age 59 1/2. So, essentially, if you fall in a very low tax bracket for the year (under 10%), your are all paid up and may even get a refund. However, if you fall in a higher tax bracket than 10%, there will be more tax due when you file. Obviously, these taxes and penalties are the reason we typically discourage people from cashing out early. Good luck!

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