401k Withdrawal
I am 52 and retired from law enforcement and am eligible to withdraw from my 401k without penalty. When I checked into withdrawin money I was informed they would take 20% federal tax first then disburse the rest. But I was under the impression since Im in a lower taxbracket, that I would be taxed lower. The people at the 401k plan stated it was automatic they take 20% federal when you withdrawal. Is that right for this to happen?
Permalink Submitted by Alan - IRA critic on Tue, 2019-03-12 19:27
Permalink Submitted by David Mertz on Tue, 2019-03-12 19:47
You’ll ultimately get a tax refund of any excess taxes withheld. If you have other sources of income from which taxes are withheld, you could potentially reduce the tax withholding on those other sources of income to compensate. Even without being able to reduce withholding on other sources of income, the 20% tax withholding would really only affect the first year since you could save the money you get from the tax refund of the first year’s tax withholding to complete the rollover of the next year’s tax withholding from the 401(k) distributions, assuming roughly equivalent distributions and other income each year, putting you in the same tax bracket. You just need to budget that.