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401K fees & taxes
Posted on 1/25/24 at 8:26 am
Posted on 1/25/24 at 8:26 am
Looking for info on what fees and taxes are taken if/when a 401K is closed early.
Likely to be changing jobs and good chance there will be a break between old and new so weighing options. Thanks in advance for info!!
Likely to be changing jobs and good chance there will be a break between old and new so weighing options. Thanks in advance for info!!
5
Posted on 1/25/24 at 8:29 am to Tiger9376
Likely your biggest cost is the opportunity cost of not having the money invested over the rest of your working life.
Posted on 1/25/24 at 8:34 am to Tiger9376
If you liquidate the account, you’ll owe income tax and a 10% penalty if you are under 59.5 years old.
You should look into rolling it over into an IRA to keep your money invested and avoid the taxes/penalty.
You should look into rolling it over into an IRA to keep your money invested and avoid the taxes/penalty.
Posted on 1/25/24 at 8:59 am to LSUcam7
This! You are taking a big step backwards.
Posted on 1/25/24 at 9:10 am to Tiger9376
Don't do it!
Posted on 1/25/24 at 9:17 am to Tiger9376
Also, your 401k will apply 20% mandatory withholding from taxable distributions. It’s best to roll to IRA and decide for yourself how much, if any, you’d like to withhold.
This post was edited on 1/25/24 at 9:18 am
Posted on 1/25/24 at 9:18 am to DrrTiger
Just leave it in the old 401k if you can then rollover to new employer. Or rollover to an IRA with a low cost broker (not a bank or high fee advisor.)
Only real downside to IRA rollover is having traditional IRA complicates backdoor Roth in future if you have high income and want to contribute to a Roth IRA.
Never liquidate early and pay tax and penalty unless it is a last resort in a personal financial crisis (with very few exceptions.)
If leaving employer in year you turn 55 or after you can withdraw from that employer 401k penalty free an exception to the 59.5 rule.
Only real downside to IRA rollover is having traditional IRA complicates backdoor Roth in future if you have high income and want to contribute to a Roth IRA.
Never liquidate early and pay tax and penalty unless it is a last resort in a personal financial crisis (with very few exceptions.)
If leaving employer in year you turn 55 or after you can withdraw from that employer 401k penalty free an exception to the 59.5 rule.
Posted on 1/25/24 at 10:31 am to TorchtheFlyingTiger
Thanks for all of the info.
Had a call with the company this am to inquire and it is immediate 20% Fed tax payment. Then at tax time fed taxes and 10% early withdraw fee.
Had a call with the company this am to inquire and it is immediate 20% Fed tax payment. Then at tax time fed taxes and 10% early withdraw fee.
Posted on 1/25/24 at 11:25 am to Tiger9376
quote:
Had a call with the company this am to inquire and it is immediate 20% Fed tax payment. Then at tax time fed taxes and 10% early withdraw fee.
Like all withholding, the 20% goes toward what you will eventually calculate to owe when you file your tax return.
Posted on 1/25/24 at 11:50 am to Tiger9376
I think there is some sort of penalty of a 401k is rolled over after a 60 day period. Not sure tho.
This post was edited on 1/25/24 at 11:55 am
Posted on 1/25/24 at 12:18 pm to Tiger9376
quote:
Had a call with the company this am to inquire and it is immediate 20% Fed tax payment. Then at tax time fed taxes and 10% early withdraw fee.
Yeah but the 20% is generic - it has nothing to do with your actual situation or liability.
Posted on 1/25/24 at 3:18 pm to BabyTac
quote:
I think there is some sort of penalty of a 401k is rolled over after a 60 day period. Not sure tho.
Doing some research now and I believe you’re correct, although I can’t find anything clear cut.
I’ve got two 401ks from past employers (one with Merrill and one with John Hancock) and would like to consolidate them for ease, but knowing there may be a penalty, I’m inclined to just let them sit.
Posted on 1/25/24 at 3:29 pm to SouthPlains
quote:
Doing some research now and I believe you’re correct, although I can’t find anything clear cut. I’ve got two 401ks from past employers (one with Merrill and one with John Hancock) and would like to consolidate them for ease, but knowing there may be a penalty, I’m inclined to just let them sit.
There is no penalty to rollover into traditional IRA. It can sit in there for 10 years before you roll over without penalty. 60 day rule is if you withdraw the funds from the 401k, you have 60 days to deposit into Ira…. Can’t sit on the check, have to move the money within 60 days between accounts. Not 60 days after you end the job
Posted on 1/26/24 at 7:55 pm to DrrTiger
You avoid the 10% penalty by withdrawing from a 401k as long as you’re 55 or older, not 59.5 like IRAs.
Posted on 1/26/24 at 8:42 pm to TX_Tiger23
Rule of 55 on!y applies to 401k of employer that you leave in year you turn 55 or later. Other 401ks and IRAs do not apply (unless you rollover into employer 401k before leaving.)
Posted on 1/27/24 at 1:22 pm to TorchtheFlyingTiger
Correct and thanks for adding additional specifics. Wish all of this would be simpler. Then there wouldn’t be so much confusion across the board
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