401k
401k Information

401k Distribution

When you're in debt without having any approach to pay it off, it's turn to 401K Distribution to maintain your financial problems from spiraling uncontrollably. It is really critical that you simply try to remember your duty to settle taxes at the time you complete a 401K distribution if you need to stay away from liability or even the desire for high quality tax help.

Stay away from Debt & Be Aware with 401K Distribution: Most 401k policies solely allow premature distribution if it's for “financial hardship” reasons. Your manager determines his/her own meaning of “hardship,” which is often a fantastic or perhaps a very bad thing 00004000 for you personally. These lists will furnish the specialized tax help you may need and help you stay away from debt when it comes to 401k withdrawal issues.

401k Distributions Need to Only be Considered if:

  1. Typically, it is satisfactory to create a 401k withdrawal to pay for funeral service bills for a member of the family.
  2. 401k Withdrawl to afford a down payment or to stay away from eviction or real estate foreclosure on a major home is usually allowed.
  3. To offset medical obligations: If professional medical bills will have to be covered yourself or for you and your family, the 401K withdrawal is typically allowable.
  4. To cover educational costs: Although this is just not the best choice to prevent tax debt, a 401k distribution can be used to pay college tuition. You can prevent debt associated with college loans, however you stay away from liability in most circumstances if you are using 401k withdrawal to pay expenses.

A lot more 401K Withdrawal Info

Frequently Asked Questions

  1. QUESTION:
    401k distribution?
    Can anyone who knows about stocks help me with the distribution or know where to get help on managing my distribution of my 401k?
    the company i work in only matches like 50% up to 4% so that sucks. I need to balance the asset distribution so the stock market actually helps me.

    I just have the feelling the company is taking my money and putting it on default mediocre stocks.

    Please help!!
    by the way the company is DISNEY wich if you have ever worked there knows pays sqwat!!
    the available options are as follows:

    COMPANY STOCK

    DISNEY STOCK FUND

    LARGE CAP
    FID CAP APPRECIATION
    FID GROWTH & INCOME
    FID US EQ INDEX POOL
    SEQUOIA FUND

    MID-CAP
    ARIEL APPRECIATION
    CALAMOS GROWTH INST
    VANG MIDCAP IDX INST

    SMALL CAP
    BARON GROWTH
    ROYCE LOW PR STK SER
    TAMARACK ENTRPRISE I
    INTERNATIONAL
    FID DIVERSIFIED INTL

    Blended Fund Investments*
    FID ASSET MGR 50%
    FID FREEDOM 2000
    FID FREEDOM 2005
    FID FREEDOM 2010
    FID FREEDOM 2015
    FID FREEDOM 2020
    FID FREEDOM 2025
    FID FREEDOM 2030
    FID FREEDOM 2035
    FID FREEDOM 2040
    FID FREEDOM 2045
    FID FREEDOM 2050
    FID FREEDOM INCOME

    Bond/Managed Income
    INCOME
    PIM TOTAL RT INST

    Short-Term Investments
    FIDELITY INST MMKT

    • ANSWER:
      They match something at least ! You make 4% more than someone who doesn’t get into the plan!
      Now that you “feel” better, let’s get you into the best funds from your list.
      IF you can get into Fidelity Diversified International JUMP IN… if your young go 50% in there for awhile ( It’s one of the best “internationals” around.
      Also that Ariel fund does very well some years… and averages pretty decent.
      … and Disney stock is NOT a bad place for about 10 or 15% of your money.
      Good luck.

  2. QUESTION:
    401k Distribution?
    I left my job and had to take a full distribution on my 401K. I intended to Rollover the funds and had the check made out to my new plan. I missed the 60 days Rollover Period and instead deposited the funds in to my bank account. I received my 1099-R and they coded my distribution as a direct rollover. I called to ask them to ammend it, but they stated they could not because the check should not have been able to clear in my bank account. How to I fill out my taxes correctly?

    • ANSWER:
      You are now subject to a 10% penalty for taking the proceeds directly. See a CPA for advice. This is too serious for this forum, unless it was just a few bucks. But, since you took the $ and cashed the check, you do have to declare it as income, plus pay the penalty. Good luck. p.s.-you’d be taking a chance by showing it as a direct rollover. That’s why I’d see an accountant…

  3. QUESTION:
    I have a 401K distribution after be layed off and i want take 00 off top to pay off car how bad tax will be
    I have a 401K distribution and i want to pay off my car note because my income is fixed and i do not want to default the loan…I have at least 30k in my 401K account and I would like to take 5K from it to pay off my bills since I do not have a job and and monthly payment of 200 bucks is killing me. what should I do?

    • ANSWER:
      If you take distribution before 59 1/2 of age, you will be charged 10% penalty on early withdrawal. Thus on ,000 you will pay additional tax of 0.

      Also the distribution of ,000 will be your income in the year of distribuition. If you are unemployed in that year, your total income for that year including the distribution will be small and you will pay no tax or little tax.

      Now decide do you want to get ,000 and pay 0 extra, or do you have other borrowing options.

  4. QUESTION:
    What is the tax rate for 401K distribution from an estate?
    Hi –
    Receiving a distribution from a relative’s estate which was largely in a 401K…..will this distribution be taxed at a fixed rate or do we specify the rate…..or will it be taxed at our taxable income rate from our most recent tax return? We are in CA….will there be both Federal and State tax implications? MANY THANKS! Can’t really ask the trustee as they charge (greatly) for their time!

    • ANSWER:
      Are you listed as beneficiaries? This would mean the 401k was not part of the estate. It would pass to those named as beneficiaries and the same rules would apply to you as to the original owner — 10% penalty for early withdrawl and both stae and federal income taxes.

      However, if the estate is the beneficiary. The estate would be paying the taxes and the heirs would just get the cash.

  5. QUESTION:
    Using 401K distribution for primary home purchase, how much is taxed?
    If I take out 100K from my 401K to use as a down payment for my primary home purchase, how much tax do I have to pay. Some say only 10% because it is a ‘hardship’ distribution. Its this true?

    Or is this 100K distribution going to add to my anual gross salary and then the new tax bracket applies to it in addition to the 10%?

    • ANSWER:
      Hardship distributions are allowed from 401k plans. There are certain ‘safe harbor’ definitions that must be followed. One of those is that you can withdraw money to purchase a primary residence. Not all plans have to allow for hardships. It’s something that’s available but not every company that sponsors a plan allows for them. In addition, sometimes only the actual $$ amount of contributions that you put in the plan are available for withdrawal. You should check with your HR/Benefits office to make sure that 1) Hardships are available and 2) What amount you have available to you for hardship.

      A hardship distribution from a 401k is not considered a ‘rollover eligible’ distribution. This means that there is no mandatory federal tax withholding. There is 10% voluntary withholding, but you can elect to have no taxes withheld. You’ll still be liable for them of course when you file your 1040.

      You’ll then receive a 1099-R tax form in the following January. It will show the gross amount that was withdrawn and any tax withheld. You’ll have to include this amount on your tax return on page 1. It is taxed as ordinary income. Plain and simple it is added on to your other income so yes, it could bump you into a higher tax bracket. You will also pay an additional 10% penalty on the GROSS amount of the withdrawal if you are under age 59 1/2. There is no exception to this.

  6. QUESTION:
    How much refund can I get if last year my sole source of income was an early 401k distribution?
    Me: single, 28, no other source of income from 2006 other than a early distribution I got from my 401k. The amount was for k, of which .6k was withheld by IRS.

    Will be able to get a refund this year? If so, how much?
    I live in California. Single, 28, no current income.

    • ANSWER:
      I ESTIMATE 13000 INCOME MINUS PERSONAL EXEMPTION 3300 AND STANDARD DEDUCTION 5150= 4650 TAXABLE
      TAX OWED ON 4650 IS 468
      PLUS 10% PENALTY FOR EARLY RETIREMENT WITHDRAWL OF 1300
      =2600 – (468+1300) = 2 REFUND

  7. QUESTION:
    What line does taxes withheld for a 401K distribution go?
    Hi,
    I read online to put the taxes on line 64 but that is Earned Income Credit. That seems weird to me.

    I am referring to the 20% withheld from a 401K Distribution rollover for Form 1040

    • ANSWER:
      The total amount of the distribution goes on lines 15a and 15b. The 20% federal income tax withheld from your distribution will be reported with all other taxes withheld from forms W-2 and will appear on line 62.

  8. QUESTION:
    How long to get 401k distribution check?
    Hi,
    Can someone who has experience in this area tell me how long, by law does it take to receive your 401k distribution check after all the required paperwork has been submitted to your previous employer? I turned paperwork in back in April 07 and still have not received the check. I have followed up with the company that holds the account and was told it was sent to the employer to sign off on. The employer said he is within the normal time frame according to the labor board. is that truly normal time frame? Thanks for your help in advance.
    It is to be rolled over…

    • ANSWER:
      stop– why do you want the money — don’t you want to roll it over so you will not have to pay a penalty and taxes on the whole thing in one year.

  9. QUESTION:
    Will 401k distribution affect my eligibility of receiving unemployment compensation? ?
    I recently got laid off and try to apply for unemployment compensation, I don’t know if I should take a 401k distribution? Will I be able to get unemployment compensation if I take the cash distribution?

    • ANSWER:
      has nothing what so ever to do with your compensation!!!

  10. QUESTION:
    Are federal and state tax rates the same for 401K distribution as ordinary income?
    I read somewhere that we “might also pay state tax” on 401K distribution and wonder where the “might” happens vs. “might not”. Also if 401K distribution is the main source of income, then will I be taxed the same as that is my income? In that case, what is the current tax rate? Thanks in advance!
    Thanks for all the answers. Just to clarify, this question is for the qualified periods (after 59 1/2 years of age), so there will be no 10% penalty, etc.
    One main point of my question is about “state tax.” If I am paying state tax on my income now, is there a scenario where I don’t have to pay state tax on 401K distribution? (e.g. what happens if I move to another state?)
    MikeL, thanks for the answer. However, consider this scenario: in my life, I have been working in California (2-9% state tax), Nevada (no state tax), and others. In the end, my 401K balance is an accumulation of contribution from my working in all these states, with different state tax. In my retirement years, if I move to Nevada and withdraw my 401K, and if Nevada has no state tax on income, do I have to pay for any state tax? If yes, how? Thanks!

    • ANSWER:
      You will pay state taxes on the 401-K only to the state of residence for when the withdrawal occured. If all of your career was is California (2-9% tax rates), but you retire and move to a state with no state income tax (Nevada, Florida, Texas, etc.) there would be no state tax.

      California tried a few years ago to track down and tax former residents, but the federal courts made them back down.

      Hope this helps.

  11. QUESTION:
    401K early distribution for first home purchase?
    I withdrew ,000 from my 401k to purchase a home, but I closed on may of 2009. Since the purchase did not occur until 09 I paid the 10% tax penalty plus taxes for the 401k distribution on my 2008 income tax return. Can I amend my 2008 return to avoid the penalty? The money was used to purchase the house. Was there a time limit to close on the house in order to avoid the penalty?

    • ANSWER:
      Your Accounting GURU

      It is always nice to see these things for yourself: I have sent you a link to the 5329 instructions: You will notice that the exemption from penalty for the purchase of a new home is for IRA distributions only.
      ————————————————————————————————————————————————-
      First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to ,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.
      It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it.

      ———————————————————————————————————————————————–

      It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined later) who is any of the following.

      Yourself.

      Your spouse.

      Your or your spouse’s child.

      Your or your spouse’s grandchild.

      Your or your spouse’s parent or other ancestor.

      When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than ,000.

      http://www.irs.gov/publications/p590/ch01.html#en_US_publink1000230701

  12. QUESTION:
    Is there a time limit on a company to respond to a 401k distribution request after employment ends?=12520690?
    Was terminated in April and requested my 401k distribution 3 weeks ago and person responsible will not sign and forward for distribution.

    • ANSWER:
      Yes, typically the distribution has to be made 6-months after the end of the plans year. In your case this would most likely be June 2010.

  13. QUESTION:
    Do I owe California taxes on NV 401k Distribution?
    I lived in Nevada for the entire time I had a 401k. I took an early distribution and moved to California. I did actually receive the check in CA and deposited it in BofA after moving to CA. Am I really expected to pay taxes to CA for money that was never earned in CA?

    • ANSWER:
      For tax purposes, money from a 401K is “earned” (for lack of a better word) when it is distributed, in other words, when the company running the 401K sends it to you. Also, all income is subject to tax by the state where you were a resident when you “earned” (again, this is not really the correct word) it. If you were a California resident when it was distributed, then you must pay CA tax on it. If you were a NV resident when it was distributed, then you are required to report it on your CA part-year resident return, but you do not pay CA tax on it.

      It does not matter when you deposited the check. It matters only when it was “distributed”. EXCEPTION: If you deposited the check into an IRA (other than a Roth IRA) within a certain time period, then it is a rollover and no federal or state tax applies to the amount rolled over.

  14. QUESTION:
    Can a 401k early distribution request be denied?
    I asked my 401k administration company for an early distribution, acknowledging that I would have to pay a penalty. They simply refused to give it. Is this legal? I assumed an early distribution was my legal right.

    Please, no reply unless you know the definitive answer. I would also appreciate a citation of the specific law or IRS publication if appropriate.

    • ANSWER:
      Yes. Consult your company’s plan provisions. Only certain hardship situations are “legal rights.”

  15. QUESTION:
    Will be 401k distribution be taxed again at the end of the year?
    I had them take out taxes for early withdrawal, plus federal taxes plus California taxes … So when I do my taxes this year, will that mean I get taxed again on the distribution or will my taxes witheld at the time of the distribution cover it?

    • ANSWER:
      You won’t be “taxed again”. When you do your taxes, it will calculate the amount you owe, and apply the amounts withheld against it. Since you cashed out you 401k, on top of the taxes, you will be assessed a 10% penalty on the total balance cashed out… That will be assessed when you have you 1040 done.

  16. QUESTION:
    Forgot to report nontaxable 401k distribution on taxes – should I amend?
    I just completed and filed my taxes for 2009, only to receive a 1099-R in the mail for my 401k distribution. I completely forgot about it and was not anticipating it. Since it was a direct rollover into an IRA, it’s not taxable and will not affect what I owe or get back from the government. Should I amend my return to report it, or can I let it go? (Serious answers only please from those who have tax expertise or have faced a similar situation.)

    • ANSWER:
      I had a client who had the same situation a few years ago. He didn’t report the 1099-R on his tax return that he filed. About 6 months later the IRS sent him a letter about an audit of that particular part of the 1099-R form that was not reported.

      I would recommend amending the return so all the figures match up with what is reported to the IRS.

  17. QUESTION:
    How much in tax will I have to pay on this 401k distribution?
    When I was laid off I let my 401k loan take 00 out of the account to pay off a 401k loan. They told me I would have to pay tax and penalty on it, but they didn’t say how much. So, anyone with tax knowledge? About how much must I pay on that when I go to H&R Block?

    • ANSWER:
      The gross amount of the distribution is taxable as ordinary income. That means it gets added to your other income for the year before taxes are computed. You’ll also pay an additional 10% penalty on the gross withdrawal if you were under age 59 1/2.

  18. QUESTION:
    Will taking a 401k distribution affect my unemployment?
    I have been unemployed for 2 months and need to cash out my 401k its not alot and will only receive about 3,000. But will it affect my unemployment checks?

    • ANSWER:

  19. QUESTION:
    Is an early 401k distribution already included in your wages on a W-2 form?
    If an early 401k withdrawal was made during 2009, is it already counted in the “wages, tips, and other compensation” box on the W-2 for that year?

    • ANSWER:
      A early distribution amount withdrawal from your 401K account will not be reported to you on your W-2 form at all.
      Any taxable early qualified withdrawal distribution amount that you have received will be reported to you on a 1099-R that you will receive after the end of the tax year with the information that you will use to report the distribution withdrawal from the 401K on your 1040 federal income tax return in the year that it occurred in and if you were under the age of 55 and still an employee of the company the taxable amount will be subject to the 10% early withdrawal penalty plus federal income tax at your marginal tax rate.

  20. QUESTION:
    When will I have to pay taxes and penalties on my 401K distribution if I do not take it out until mid Nov?
    I am unemployed and want to have my 401K disbursed to me at this time. If I do not need to roll it over for 60 days, will I need to pay taxes and penalties on it for 2008? or 2009? I need the money now, but do not know if I will use it all. I may roll some of it over within the 60 days.

    • ANSWER:
      You pay taxes based upon the cash disbursement date. If you only need some now then I’d take part in cash and then roll over the rest in a direct rollover. Although the law says that you have 60 days to roll it over, when you take a distribution in cash the assumption is that you will not be rolling any over so they withhold 20% from total distribution.

      So let’s say you have 10k. If you took it all in cash you would receive only 8k. If you turned around and rolled 5k into an IRA you would get penalized and taxed on only 5k and since you already paid 2k in taxes you’d likely get some of that back. In other words you’d get 3k now and then maybe some later after you file your taxes.

      If you took 10k all in cash and didn’t roll any over with in the 60 day windo you’d receive 8k and be taxed and penalized on the entire 10k. You may or may not owe additional txes depending on your income and withholding from your job.

      However, if you take 5k and roll 5k over you’d only have 1k withheld and you’d get taxed and penalized on the 5k. TYou’d have 4k now and may or may not owe some slight additional tax depending on your tax level. Benefits of this scenario is that come January 1, if you need additional funds, you’d be able to take a distribution from your IRA and that wouldn’t be taxable until April of 2010. In other words, you’ve spread your tax liability.

      keep in mind that Obama wants to remove the early withdrawal penalty on 401k distributions. this wouldn’t occur until he becomes president in January so if you don’t really need the money I’d wait until then. No need to pay that extra tax if you don’t really have to.

  21. QUESTION:
    Anything tricky about taking a post-tax distribution from 401K?
    I am nowhere near retirement age, but I noticed the assets in my 401K are mostly pre-tax, but there is about K that is post tax. Since I already paid tax on this, I should be able to take a distribution in this amount and not trigger any penalties or extra taxes, right? I would think any interest or capital gains on my post tax contributions would remain in the account and not be available until I take taxable distributions.

    • ANSWER:
      If it’s in your 401k, then any withdrawals that are not hardship withdrawals (Per IRS, hardship withdrawals are only permitted if there is an immediate and heavy financial need and other resources are not reasonably available to meet the need) will be penalized by the federal govt by 10%. So you would receive k from your 401k but when you file your taxes, the federal government would want their 10% penalty. Doesn’t matter if you’ve already paid taxes and doesn’t matter if you tell your 401k to keep any interest/capital gains in your account.

      You may also want to make sure the 10k has already been taxed in your state as well, cause if it hasn’t and you withdrawal, you’ll be liable for state taxes on the full 10k.

  22. QUESTION:
    CAN A WAGE GARNISHMENT BE TAKEN FROM A 401K DISTRIBUTION?
    I WAS RECENTLY TERMINATED. I AM CASHING OUT MY 401K. I PREVIOUSLY HAD A WAGE GARNISHMENT. CAN THEY GARNISH MY 401K DISTRIBUTION?

    • ANSWER:
      I’ve been working in 401k customer service for 4 years and have never seen it happen. I don’t think they can touch your 401k….so contribute as much as you can! IRA and brokerage accounts have different rules though, I think they can get into those accounts.

  23. QUESTION:
    My friend took a 401k distribution but then forgot to include it on his taxes. How does he correct it?
    He was unemployed and they did take the standard 20% federal tax out but not the 10% penalty. Is there a certain form to file?

    • ANSWER:
      Your friend has to amend his tax return (federal and state).

      Federal is 1040X

      State has its own amended forms – go to the state’s department of revenue to look up.

  24. QUESTION:
    How to receive your 401k distribution?
    I have a list of withdrawal options for my 401k but i’m not sure how to start. I have a letter here from the company saying (special Tax Notice Regarding Plan Payments) and they suggest that i discuss these options with a qualified tax consultant. is this necessary or can i just take the 80% of my account balance while the 20% are being held for federal income tax as stipulated by the internal Revenue Service. If i decided to do so will I have to file/pay for any more taxes by the end of the year?

    • ANSWER:
      Why do you want to withdraw the money? If you are changing jobs, then roll the money into and IRA and keep saving for retirement. You can go to any brokerage or on line trading site and they can help you set it up. Unless you are desperate for the money, withdrawing it is a terrible idea.

  25. QUESTION:
    If you use a 401K distribution to pay off a student loan, does it off set penalty for early withdrawal?

    • ANSWER:
      Just some insight. If you use your 401k, it should be an emergency only as the cost if you are young will be outrageous. I am sure you have heard the one about k in your 401k at 25 will be about 0k when you retire.

      One other thing I have seen people do is loan themselves money out of their 401k. You can set the interest at the rate you want. The only thing is, you don’t get interest on the outstanding balance, your 401k provider does.

      ..

  26. QUESTION:
    Tax question on 401k distribution?
    I moved some post tax 401k money to a brokerage account (my own money I put in, no employer money). My 1099R shows the gross distribution, but as taxable amount shows zero. Is this a taxable event? The brokerage house is Fidelity, and they’re usually pretty good about calculating this. I was told I can do this tax free, but want to be sure. The distribution code is 1 – Early distribution, no known cause.

    • ANSWER:
      If the 1099-R shows zero in taxable amount then it’s a non-taxable event. I find it odd though that there was no earnings on this amount. Earnings on a post-tax 401k account are pre-tax and thus should be taxed upon distribution. Did you get 2 1099-R’s? 1 for post-tax showing what you said above and then 1 for pre-tax that you rolled over?

  27. QUESTION:
    Where does a 401K Distribution go on Form 1040?
    IRA Distrubions or
    Pensions and annuties?

    I’m referring to if someone withdrew some money from their 401K…and put some of it back into a rollover IRA. Where would they put the amount that they kept? 15a or 16a?

    THANKS!
    vb:
    The amount that wasn’t put back in: Does that include the 20% taxes? What line do I put the taxes on?

    • ANSWER:
      Find the 1040 line that says Pensions. The amount taken out goes on the a part, the amount that *wasn’t* put back in on the b. Don’t forget to include any penalty on the back.

      The instructions will also have you write rollover next to the line.

  28. QUESTION:
    Can an early distribution from your 401k change your tax bracket?
    I took an early distribution from my 401k to buy a house. Does the addition of the withdrawal money to my personal income change my tax bracket?

    • ANSWER:
      Keep in mind that you will pay regular taxes and a 10% penalty.
      Hopefully your employer kept at least 20% to help you pay your taxes at tax time.
      And yes, it can knock you right into a higher tax bracket since it is considered income…

  29. QUESTION:
    What % should I withhold for state taxes when taking a lump sum distribution for my 401k?
    I am taking a lump sum distribution from my 401K (job change). I know it’s not the best choice for my future, but circumstances require it. I know I will have 20% taken in Federal Income Tax, and a 10% early withdrawl taken, but should I withold some $ for State Taxes? If so, how much is it for WI residents?

    Thank you all!

    • ANSWER:
      I would ask your 401k administrator. They have all the information they need at their finger-tips as to state taxes to withhold. Unfortunately, with WI the state tax percentage varies by income level, between 4.6% and 6.75%. If I were you I’d have them withhold 7% even. That way you will probably get money back in the spring if they withheld too much.
      Also, with regard to the Federal, you can also have them withhold a little extra for Federal as well. I’d recommend this, as it hurts too much to take a hit later than have a lump sum reduced by a little more in the beginning. That’s just my experience.

  30. QUESTION:
    How much can I expect to lose from a early distribution from a 401k?
    If I am in the 25% tax bracket, how much will I lose if I take an early distribution from my 401k/profit sharing program. I already know about rolling it over into another IRA, but I would just like to know how much I would lose. My friend (a CPA) said that I would lose 25% plus 10% for early withdrawal and possibly have to pay taxes on it around tax time if enough taxes weren’t taken out.

    • ANSWER:
      Your friend the CPA is right. You’ll pay taxes on the distribution at whatever tax bracket you’re in, plus a ten percent penalty. And if whoever’s got the money now doesn’t withhold enough on your behalf, then yes, you’ll have to pay the difference.

      Just roll it over and leave it alone. You’ll need that money more when you retire than you could possibly need it now.

  31. QUESTION:
    I need to take a distribution from my 401K. What can I expect as tax & penalty?
    I need to take a distribution from my 401K due to a financial emergency (unemployment) and need to understand what i will owe the IRS out of that money. I know there is the 10% penalty (can that be waived if one has had to endure unemployment hardship?) and a tax amount. Is the tax going to be per my individual tax rate for is it a fixed amount?

    • ANSWER:
      The tax is whatever your bracket is including the distribution as income, and sorry but no the penalty can’t be waived.

  32. QUESTION:
    401K distribution and age difference of spouse is 9 years?
    I am currently 49 and my spouse is 40. When I retire in 13 years at age 62, my wife would also like to retire. We will have between 2 and 2.5 million dollars in 401K accounts, of which 75% will be in my wife’s accounts. We would like to live off of the interest only and preserve the principal, but she will only be 53 years old and cannot begin withdrawing from her 401K accounts until she is 59. Should we change our savings strategy and being investing in taxable investments so that we can withdraw the interest from her accounts before she is 59?

    • ANSWER:
      Well…a few different things can happen

      1) as the other poster said, stop her deferrels and contribute fully to yours. Build yours up as high as possible.

      2) retire in 15 years after your wife has turned 55. The 10% penalty rule applies only if you separate from service PRIOR to age 55. So that’s where the 401k is better than the IRA.

      or

      3) Retire when you wish and take advantage of the 72(t) rule which says that you can avoid the 10% penalty if you take a series of substantially equal payments over the life of the participant and participant’s beneficiary. Since they will base them on life expectancy the payments will likely be lower than the interest you’re currently earning. Only requirement is that you have to be separated from service (quit), they have to be a series of payments at least annually, and they can’t be changed for at least 5 years or until she turns 59 1/2 which ever is later (in your case it’s 59 1/2).

      So, you can still tap her accounts even though she’s not 59 1/2.

      Start your research now…72(t). It’s sole purpose is to allow people who can afford to retire early to do so without incurring the 10% penalty.

  33. QUESTION:
    Do I have to pay Medicare or Social Security tax on a 401K distribution?

    • ANSWER:
      No you do not pay Medicare or Social Security Taxs on your distributions from your 401K. If you are at least 59 1/2 you will only pay income tax on the taxable portion. This is not earned income subject to SS and Medicare tax

  34. QUESTION:
    What is best route for taking distribution of 401K as a beneficiary?
    Mother passed in Sept 05 (she was 61) and I’m the beneficiary on her 401K accts. Trying to determine the best route to avoid paying high taxes. In the short term, I am looking at possibly using some monies from the accts to help fund a new business. I’m in my mid-30s. What are my options?, how soon do I need to act?, and what is the best route to avoid paying a bunch of taxes?

    • ANSWER:
      A non-spouse beneficiary may distribute the assets over the life expectancy of the oldest beneficiary. You certainly can take it quicker than this.

      You will need to check with your mother’s 401(k) provider and see if they have any special beneficiary rules.

      The best route to continue with the tax-deferred growth benefit of the 401(k) is to stretch the distributions out for as long as possible. Keep in mind, taxes should not be your only consideration. If you take the money more quickly, will you do something positive with this money?

  35. QUESTION:
    Can I take a partial 401K distribution?
    Hi – is this possible? Say I lose my job. I have 200K in a 401K plan. Could I go ahead and take the distribution (and let them withhold the taxes and penalties), but then later, say in 2 months when I have a new job, roll over alot of that (but not all) into the new job’s plan and get back what I’m “owed” on what they withheld?

    • ANSWER:

  36. QUESTION:
    A recent mutual fund distribution sank my 401k balance a lot. Don’t I get to benefit from the distribution?
    Specifically the mutual fund PTRAX went down 5% in one day recently. I found an article basically saying don’t worry, it was just because of an annual distribution. The next day I don’t see any upside from the distribution in my 401k. Do I get to benefit from this distribution in my 401k balance? If so, how long does this take?

    • ANSWER:
      You’ll either receive a cash payment, or an increase in your number of shares. But it may take a few weeks. During that time, it looks like you’ve lost money.

  37. QUESTION:
    Changing 401k distribution, international investments or domestic?
    With the DOW Jones falling another 300 points and China thinking about backing the euro instead of the dollar should I invest a larger portion of my money in international investments or keep them in domestic investments?

    • ANSWER:
      International funds have worked for me also…in some cases more than doubling in the last 4 years…
      Think about it..the companies in the U.S. that are still doing well are the ones that do a large percentage of their business overseas..( UTX, DELL, HPQ, FLR, JEC even the Procters, Colgates, etc ) why shouldn’t you?
      Don’t go 90% or anything and check your funds on-line every so often, that’s all.

  38. QUESTION:
    I have not received my 1099R form my 401K distribution. Can I still file my taxes.?
    I recieved a lump some, my check stub shows how much I recieved plus how much taxes I paid. I am in a hurry to get my return back. Can I report the information on my return and send the 1099R later when I finally find out what happend to it.

    • ANSWER:
      Since you had withholdings taken from the check, the IRS needs to see that form just like they need to see the W-2. Submitting your tax return without the 1099-R is not a good thing. You don’t actually need a “real” copy of it. In other words, can’t you go on-line somewhere and get a copy of it. A copy of the real 1099-R would suffice. If you knew exactly what was in all the boxes, you could file on-line by typing in what is in the boxes into the software. But paper filing will need a paper copy (or original) of the form. Sorry for the bad news.

  39. QUESTION:
    Can I do a rollover/direct distribution of 401k into a traditional IRA while still employed?
    I’m not satisfied with investment choices at the current 401k investment management company and would like to move my vested funds to another one. I found the following on the fund administrator’s site: “You may withdraw Company Matching Contributions when you terminate employment with Company. To withdraw pre-tax Employee Contributions, you must also terminate employment or have a qualifying hardship as defined in the Savings Plan and IRS regulations.” Shouldn’t there be a law protecting ME? If I can find a better manager for MY MONEY, should I not be able to do so without quitting my job? TIA.
    Clarification for raidered81: I dont want to close the 401k, I want to keep it open (for future contributions and matching). I only want to take the current vested balance out.

    The match is nice, but that’s not the point. The point is that it’s my money and I can find a better investment for it.
    Clarification for Aria: after a hardship distribution, contributions and matches are not allowed for 1 year. I can’t create a hardship, and even if I could it would not be worthwhile for me.
    Clarification for Aria’s PS: that’s not a bad idea, except my goal is to get the funds out of this management company and into another. I think they would care because once I do a rollover from my 401k into an IRA under the same umbrella, I’ll then be able to rollover from the IRA into another IRA at a different company without the restrictions that apply to my 401k.
    Clarification for ryan c: I am already contributing the proper amount. And at this point in time I don’t believe in financial advisors. Thanks for the answer though.
    Clarification for Alfredia W: How do I do it given the quote from my administrator?

    • ANSWER:
      The IRS allows you to move your retirement money from a 401k to a traditional IRA at anytime. Unfortunately, 401k rules are set by your employer within IRS guidelines. Most 401k’s have a mandatory tax withholding of 20% if you leave them early – even if it’s to move into another plan.

      Basically what you need to do is ask your plan administrator if you can do a directed rollover with any penalty. Whatever their answer is will determine your next steps.

  40. QUESTION:
    Can I do a rollover/direct distribution of 401k into a traditional IRA while still employed?
    Note: I’m looking for “positive” statement that a direct rollover is allowed – i’m sure its allowed by the IRS – i just can’t locate anything saying its allowed – in summary – does the IRS actually come out & say u can rollover 401k monies while you’re at your current employer? Thanks in advance.

    • ANSWER:
      Sorry, but the IRS specifically bars in-service distributions from a 401k.

      Excerpt from IRS Pub 560:

      Generally, distributions cannot be made until one of the following occurs.

      The employee retires, dies, becomes disabled, or otherwise severs employment.

  41. QUESTION:
    How much taxes will be taken out of my 401k lump sum distribution?
    Switching jobs and due to my personal situation I think I am going to take a lump sum of my 401k rather than roll it over. I have about ,000 in it and would like to use it to help me sell my house once and for all (Have some equity but home values dropped big time). How much of that ,000 can I expect to have in hand once they cut the check? Thanks!!!

    • ANSWER:
      When they cut the check the custodian will withhold 20% (,000) for taxes if you are under age 59 1/2 so you’ll be given a check for ,000. If your state requires withholding it will be less.

      However, your actual tax liability will depend upon your total income for the year. If you’re already in a 15% bracket, the tax would be ,250 (or more if it pushes you up a bracket) plus the 10% penalty of ,500 if you’re under age 59 1/2 for a total of ,750 or more. If you’re in a 25% bracket the total would rise to ,250 or more.

      As you can see, the amount withheld won’t be enough to cover your total tax liability on the distribution, especially if you are under age 59 1/2 at the time of the distribution. You could pull up short over ,000 at filing time next year, or even more depending upon your marginal tax rate. That’s enough to put you in penalty territory at filing time if you don’t make an estimated payment of the added tax using Form 1040-ES.

      A MUCH better plan would be to either leave the 401(k) alone or do a direct rollover into an IRA. A 401(k) that large can usually be left alone but if your plan requires a distribution upon termination then a direct rollover to an IRA would avoid any taxes. Then, if you need money to dispose of the house — remember, you do have SOME equity so you may not need all that much — withdraw only enough to pull the deal together.

      This strategy will minimize your tax hit (hopefully) and preserve as much of your retirement funds as possible. Keep in mind what the purpose of the 401(k) was for in the first place — your retirement years. Depending upon your age today, that k could triple in value or more by the time you retire even if you never add another dime to it. Bailing on it now could be VERY short-sighted.

      Another thing to keep in mind is the advisability of selling the home. Sure, values have tanked over the past couple of years, however in many parts of the country the trend is slowing and even starting to recover. If you can afford to make your payments now, even if you are upside-down on the mortgage, staying put and weathering the storm may be a more prudent plan.

      I’ve lost about k in equity in my home over the past 2 years, but I still have k remaining and a very low rate mortgage (under 4%!) so selling right now even to downsize isn’t all that attractive to me financially right now. The point is that you need to gather ALL of the relevant facts first and then make a fully informed decision.

  42. QUESTION:
    Is this a legitimate way to withdraw 401k w/o early distribution penalty?
    I’m going thru economic hardship right now (no job, no income). I have some money saved up in 401k but I really don’t feel like paying the 10% penalty.

    If i roll over my 401k into Roth IRA (of course, I know that
    ‘s a 30% tax event), then do a complete distribution from that, I can avoid the 10% penalty. Anyone know if I can get in trouble for doing this?

    • ANSWER:
      You will have to pay dearly for pulling it out.

  43. QUESTION:
    taxed again on my 401k distribution?
    I paid the taxes on my 401k distribution. I needed to take it out early because I was going through some financial trouble. I paid taxes on it when I withdrew it. Do I need to include it in my total income and pay taxes on it again?

    • ANSWER:
      You are being taxed for the first time on the tax return.

      The taxes shown on the 1099-R are withholding. Usually it is not enough to cover the tax.

  44. QUESTION:
    what is a partial distribution from my 401k, and if I do this do I have to start over in being 100% vested?
    I am 100% vested in my 401k, but I have received a paper from my fidelity account and they would like for me to either rollover a partial amount or direct rollover. I am not sure what would happen if I do a partial rollover. I am not sure what a partial rollover is and if I do this would it affect my being 100% vested.

    • ANSWER:
      has noithing to do with vesting — go ahaed and roll it over and if you can rolll the partial amount in to a roth ira — it will have to stay in that ira fo 5 years but the interest will not be taxable!!!

  45. QUESTION:
    If you get fired or lose your job can you take your 401k? If so, how long for distribution?
    If you get fired or lose your job can you take your 401k? If so, how long for distribution?

    • ANSWER:
      You can set up a IRA Rollover account with a brokerage or a bank (prefer a brokerage).

      They will help you complete forms to transfer the assets or liquidate the assets and transfer cash to the IRA Rollover account.

  46. QUESTION:
    how long does your employer have from the date of termination and request of 401K&profit sharing distribution?
    My last date of employment is on the 20th and I have requested to withdraw my 401K and Profit Sharing which I am 100% vested with the company. Is there a time frame on how long my employer has to pay me out?

    • ANSWER:
      It depends on their 401(k) provider but it can take as long as 30 days or even until the end of the next calender month.

      Your HR person/department should know the answer.

      The last time I was in a similar situation, it took 30 days from my last day until I could perform a rollover.

  47. QUESTION:
    What should I do with a lump sum distribution from a 401k in my divorce settlement?
    I am the recipient of the distribution.

    • ANSWER:
      Reinvest that money! In a 401(k) the money is invested in different funds and investment vehicles. Since you are recieving a lump sum, the best bet is to reinvest that money so it can keep growing. Note: I mean reinvest in things like mutual funds (which is most likely what the 401(k) was originally invested in), not bank CDs.
      Talk to a financial services representative in your area and they can help you decide what is best to do.

  48. QUESTION:
    Can a former employer withhold my 401K distribution at 59 1/2 because I work for a competitor ??
    I was told I must reach 65 yrs or stay out of the “industry” that I have worked in for 36 years, for 2 full years before I can get my money. This is a punishment for going to work for a competitor. Does this sound legal ??

    • ANSWER:
      If you no longer work for that company, you should just rollover that 401K to an IRA. Then you can do what you please and they have absolutely no say so. You should have been given info on how to do this when you left that company. Just call the company that handles the 401K and they will take care of it for you.

      Remember that when you start to take money out of that 401K, you will have to pay income tax. So only take out what you really need and let the rest ride.

  49. QUESTION:
    What does “deemed distribution” on a 401k mean?
    I’m looking to borrow from my 401k, but I’m not sure what they mean by “deemed distribution”…Any help with this appreciated or any help with borrowing form 401k…Thanks!!

    • ANSWER:
      it might mean if you take a loan and later leave the company before you’ve paid it back, the unpaid balance will be considered a distribution, that would be taxable income to you, plus 10% early withdrawal fee if you’re under 59-1/2

  50. QUESTION:
    Can u get a 401k distribution with unemployment in texas?

    • ANSWER:
      If you are no longer employed the the company, you can withdraw the balance of your account. This has NOTHING to do with unemployment. However, unless you roll the ENTIRE amount into an IRA, or other qualified retirement plan, you pay a penalty of 10% of the amount withdrawn, AND you are required to include the full amount of the withdraw as income on your Federal tax return.