401k withdrawal can really hurt you if you are not careful about the taxes that could be due. Job changes, hardship withdrawal, first time home buying, tuition are all viable means of 401k early withdrawal that you could do without having to pay a tax penalty. And the taxes for 401k early withdrawals are not pleasant if you do not have a valid reason for removing that money form your account.
The IRS and the Truth About Your 401k Concerns
By Richard Close
I recently changed jobs and rolled over my 401k to my new job. Since it was a roll over do I still have to pay taxes on it?No you don't. You still take the 10% tax penalty for early withdrawal. You do have to complete the rollover within 60 days in order to not have to report it as income for the tax year.
I recently retired and cashed out my 401k. Are there any tax benefits available to me because I waited until retirement to take out the funds?
You still have to report the lump sum payment of the 401k as income for your tax year and it will be subject to the 20% tax the IRS takes out. However since you did wait until retirement you won't be subject to the 10% early withdrawal penalty.
Can I use the contributions I make to my 401k as a deduction on my taxes?
No you can't. The only kind of contributions you can claim deductions for is the charitable kind. And investing in your own retirement is hardly a charitable donation.
What is a hardship distribution?
Hardship distribution is a way to withdraw money early from a 401k without paying the usual 10% penalty. The situation for a hardship distribution must require an "immediate and heavy" need for financial assistance. Acceptable reasons for a hardship distribution include: medical bills; costs for the purchase of a home; tuition and education; payment to avoid foreclosure or eviction; funeral expenses.
The money from a hardship distribution does have to be reported on your tax return as income, but depending on what the money was for you may be able to claim part of it as a deduction.
Do I have to pay more taxes on my 401k withdrawal if I'm under 50?
No you still pay the early withdrawal fee and the 20% tax on a 401k withdrawal. The 10% early withdrawal fee is only waived upon cashing out the account at retirement.
Now you have the smoking gun...Use it!
Richard Close was an IRS-Hitman. He worked as a revenue officer for the IRS and his father was the head of the collections branch for 30 years; so it runs in the family. He left that behind and now he's partnered with Tax Defense Network to help thousands of Americans with their tax problems. He gives the tips and tricks for you to fight the IRS and win! Visit him at: http://irs-hitman.blogspot.com or http://www.taxdefensenetwork.com, or contact: email email@example.com or 1-888-248-9058. Article Source: http://EzineArticles.com/?expert=Richard_Close