When are taxes due on a cashed out 401k?

Question

Am 60, and have $300,000 with my employer. If I were to cash it out totally, are the taxes due taken out of the $300k straight away, or when I do my taxes next year?

Daniel Lichtenfels · Answer

@Sammy Weinstein i had less than 10k in my retirement account from my high school/college job (A mix of Roth IRA and traditional 401k contributions). When i finished my associates and quit that job, i just pulled that money out to help pay for my bachelors. I had to pay a 10% penalty for the early withdrawal, as well as the taxes on the 401k (but not the IRA, since that is taxed at deposit). The taxes and penalty were deducted before they distributed the balance to me. However, as someone above pointed out, you shouldn’t have to pay the penalty for the early withdrawal, since you’re over 59.5 years old. I don’t know your situation either, but the ordinary tax you would be paying on the withdrawal of such a high amount would be wasteful.

Ryan Boehner · Answer

@Sammy Weinstein

59 1/2 is the "early retirement" age you can begin withdrawing 401k money, penalty free.

401k withdrawls are considered ordinary income and a taxable event in the year you withdraw the money, due by April 15 of the following year.  However as Basit says above, depending on whether taxes are withheld by the custodian when distributing the payments, estimated tax payments may be due earlier, so please consult with your accountant first.

Basit Siddiqi · Answer

@Sammy WeinsteinThe custodian may be required to withhold some percentage in federal withholding when they make the distribution to you.Ultimately, you will be required to pay the amount when you file your return or extension.However, you should consult with your accountant if you need to make estimated tax payment in the quarter that you take the distribution.

Bryan Devitt · Answer

@Sammy Weinstein they take a sizable chunk when you pull it (40%?) And then you owe the rest at tax time (10-30% depending on the state you're in I believe). Doing this would be one of the worst financial moves you can ever do in your entire life, you're literally flushing $150-200k

Mark S. · Answer

Why are you considering liquidating $300K in a lump sum?