401k -- Early Withdrawals (Prior to Age 59 1/2)

[this_is_nascar 162]

Does anyone here have any experiences with early 401K withdrawals that you'd care to share? In particular, how/if it impacts NJ State Tax. I understand that an early withdrawal counts against normal income, the plan administrator must withhold 20% for taxes and that you get penalized 10% of the total withdrawn amount. I also understand that the 20% withheld, in many cases, may not be enough cover the total tax liability come tax-time. What I don't understand is how/if this get factored into NJ State Tax.

[NJDrew1 0]

Ask Maksim. He should know more about this question than most people.

[Red Solo Cup 11]

I believe you will owe regular NJ tax as well.

It would have to be a former employer too. (cannot withdraw from current employer plan)

I think the cutoff age for the penalty with 401k is 55 not 59.5

Finally there are some types of withdrawls you can make while still active in a plan .. mainly after tax contribs and earnings on the same. (only the earnings are taxable).

Roth 401k principal and earnings can be withdrawn w/o penalty after 5 years I believe.

But of course I would like to hear the answer from a pro in the business too!

[TheLugNutZ 21]

Usually if its a roth you can also withdraw up to what was contributed in a tax year without penalty since with a roth its POST-tax money you are contributing. Yes you WILL pay NJ Income tax on the withdrawn money.

[raz-0 1,259]

Usually if its a roth you can also withdraw up to what was contributed in a tax year without penalty since with a roth its POST-tax money you are contributing. Yes you WILL pay NJ Income tax on the withdrawn money.

 

You'd pay income tax on already taxed contributions to an after tax retirement plan?

[this_is_nascar 162]

Thanks. 59 1/2 is the cutoff for getting a pentilty for an early withdraw. If you've seperated from your employer at 55 or older, you don't pay the penalty either. I'm aware of that info. Specifically, I'm interested in what NJ wants, if anything, from the early withdrawal transaction. Thanks for mentioning Maks. I didn't realize he was "in the know" on this subject. It would be a former employee that still had the plan at his old company. I'm not talking about an IRA or Roth IRA. This is strictly a 401k I'm asking about. I'm aware of the various hardship withdrawals and withdrawals that are allowed prior to reaching 59 1/2.

[O-gre 7]

Fed & State + 10% or if still with company take a loan. If not roll to IRA and take out only what you "need"

[TheLugNutZ 21]

You'd pay income tax on already taxed contributions to an after tax retirement plan?

 

no sorry, just on a simple/traditional pre-tax contributory plan, not on a roth, post-tax contributory plan

 

just on the gains/dividends

[this_is_nascar 162]

Fed & State + 10% or if still with company take a loan. If not roll to IRA and take out only what you "need"

 

 

It's still subject to taxes and penalties I believe.

[hd2000fxdl 422]

You would normally roll a 401k plan into a traditional IRA anyway, not take distributions from the 401K plan.

 

ETA: Actually while you have 3 options for a 401K plan, the best option is to roll over to a Traditional IRA account. Your other options are if you like to look into them would be roll over to a Roth IRA, or Cash out the 401K account, but I'd bet 99.999% of financial advisor's and people in the know would recommend to roll over to a traditional IRA.

 

Just wanted to add that being you do have more than 1 option.

[BlueLineFish 615]

Harry can't give advice. He can withdraw without penalties...lol

[hd2000fxdl 422]

Harry can't give advice. He can withdraw without penalties...lol

 

Not yet dude, but not like I am counting the 3 years, 9 months and 18 days or anything.. LOL

[this_is_nascar 162]

All I'm trying to find out is whether or not NJ taxes and/or penalizes the early withdraw. If so, is it at a special rate or that of the normal income brackets?

[67gtonut 847]

Everytime i have looked into it. When it came down to it.... You will lose half..

Take out 10K and your net will be 5k when the dust settles

 

 

Sent from my iPhone using Tapatalk excuse the spelling

[hd2000fxdl 422]

All I'm trying to find out is whether or not NJ taxes and/or penalizes the early withdraw. If so, is it at a special rate or that of the normal income brackets?

 

Not sure about NJ being when I do retire I'll be a resident of another state, but take a look at "Substantially Equal Periodic Payments" Rules for IRA and how they apply to NJ. This is one option I was looking at when I retire being I'll retire prior to 59 1/2. There are probably a few other options and like you are doing, don't make any final decisions till you know all the options and tax consequences..

[Sandy 44]

Wait for a financial advisor to answer. I took out money to open a business , was told wrong info , and was most unpleasantly screwed by state tax that year to the tune of 7K I was not expecting to owe. If memory serves. Accept no opinions or personal history..wait for Maks or someone who is a tax account IN NJ or sometime . Trust me on that.

[O-gre 7]

One did

[O-gre 7]

Rinse repeat, NJ income tax and NO penalty! Fed, State and IRS 10% penalty.

[checko 180]

Im interested to know the answer to this as well. I want to know if its a smart idea to tap into htis to buy my first house.

[hd2000fxdl 422]

Im interested to know the answer to this as well. I want to know if its a smart idea to tap into htis to buy my first house.

 

there is an exemption I believe for this, however you must pay back what you took out, I also believe it must be done on a certain schedule and with interest, but wait for as with the OP for Maks or another financial or tax adviser to chime it.

[this_is_nascar 162]

Wait for a financial advisor to answer. I took out money to open a business , was told wrong info , and was most unpleasantly screwed by state tax that year to the tune of 7K I was not expecting to owe. If memory serves. Accept no opinions or personal history..wait for Maks or someone who is a tax account IN NJ or sometime . Trust me on that.

 

Agreed. This is what I intend to do anyway. I just wanted to get some thoughts from anyone is already done this.

 

 

Sent from my DROID RAZR using Tapatalk 2

[reloaderguy 30]

Don't do it!

 

[TanJovi 5]

Don't do it!

 

^^ What he said.

 

Check out: http://www.state.nj....tgi-ee/git1.pdf

 

If you are still employed with the 401k employer you really can't get it out unless you claim hardship. You can take a loan for certain things.

 

Fed Tax + 10% + State Tax = not worth itThis is tax preferred account and it is tough to justify taking that kind of hit. Given the contribution limits it is tough to re-build.

 

There's also other protections that retirement accounts get that others don't.

 

And as for the "Substantially Equal and Periodic Payments" - 72(t)(2) - be very careful with this one. There is no leniency with this method and one little hiccup can make the whole thing taxable+penalties etc etc...

[O-gre 7]

Do you want to know if it's worth doing in your situation or an answer to your question? Your question has been answered multiple times. Without knowing ur full financial picture we can not provide a better answer. If you are using it to payoff 30% credit cards or to survive than that's one thing. If you are going on a vacation that's another. Something else to consider. Qualified accounts are protected in the event of bankruptcy. So if that is a potential situation for you by all means DO NOT tap those funds now!

[this_is_nascar 162]

NO, I'm not asking if it's worth doing or not. All I wanted to know was if/how much tax liability there would be for NJ. That's it. I think I was pretty clear in my 1st post. I was interested in hearing from those who have actually done it, although I appreciate the responses I've recieved so far.

[O-gre 7]

Easier answer, Your normal state income tax applies!

[this_is_nascar 162]

Thanks.

[reloaderguy 30]

NO, I'm not asking if it's worth doing or not. All I wanted to know was if/how much tax liability there would be for NJ. That's it. I think I was pretty clear in my 1st post. I was interested in hearing from those who have actually done it, although I appreciate the responses I've recieved so far.

 

Too much tax!