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Posted on 5/25/2009 8:31:13 PM tammy

 
Withholding from 401K distribution
 
How much taxes for federal and state should i hold out for withdrawing my 401k out early on the amount of 51,000.00 in the state of VA
 
Distribution from 401K is considered ordinary income, which is subject to the federal tax table as well as state tax table. In addition, if you withdraw fund from your 401K prior to age 59 , you will be subject to additional tax of 10%. This is a federal penalty you pay on early distribution from retirement account. The tax code allows taxpayers to avoid paying early withdrawal penalty in various cases. It means that if you fall under one of the 7 categories listed in this article, you will only pay federal and state income tax on the money you take out of your IRA, but you will not be subject to additional 10% penalties otherwise assessed by the IRS. So, when will you be penalty free? Here it is. Category 1: Unemployed paying Medical Insurance. Hit by the recession? Lost your job? Help is on the way. If you are unemployed for more than 12 weeks, you can use your IRA to keep paying your medical insurance premiums and avoid the 10% early withdrawal penalty. Category 2: First time home buyer. If you use your IRA money to pay for the purchase cost of your first home, you will be penalty free. To qualify, the funds you take out must be used to pay qualified acquisition costs within 120 days after withdrawing the money and It must be used to pay qualified acquisition costs for the main home of a first-time home buyer such as you, your spouse, children, grandchildren or ancestors. This exemption applies to a maximum withdrawal of $10,000. Anything you take out over $10,000 will be penalized. Additionally, you can only use this exemption once in a lifetime. Category 3: Payment of non-reimbursed medical expenses In case of medical hardship that results in unreimbursed medical costs, the IRS will waive the early withdrawal penalty if those expenses are in excess of 7.5% of your adjusted gross income. Category 4: Higher education costs If you take money out of your IRA to pay for higher education for you, your spouse, children or grandchildren, you are in the no penalty zone. Category 5: Permanent disability Money withdrawn from IRA holder when the IRA owner becomes permanently disabled is protected of penalty Category 6: Death Estate of IRA owner who died before reaching retirement age of 59 , will not be hit with the 10% early withdrawal fee. Category 7: Payment of Back taxes If you owe money to the IRS a levy has been placed against your IRA, the government will not assess 10% penalty on the amount you take out from the IRA to pay back those back taxes.

 

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