If my husband makes $130,000 and he withdraws his 401(k), what is the tax percentage that will be taken when cashing it out? We know there's also a 10 percent penalty.
The question cannot be answered without additional details. Knowing the salary amount does not take into consideration itemized deductions and exemptions. As a general statement, I would withhold 30 percent—10 percent for the penalty and 20 percent for income tax. However, this may not be enough, considering the two open issues mentioned above.
Withdrawing an entire 401(k) can lead to difficulty in investing in the future for a number of reasons, and should be considered only as a last resort. I advise you to consider other options before withdrawing the 401(k).
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Answered by: Larry M. Carroll, CPA, is individual practitioner with Larry M. Carroll CPA PC in Blue Bell, Pa.