As you know, there are many tax benefits of contributing to a 401K. With this in mind, you should also know how the withdrawal process works, when you can get your money, penalties that may arise, and how to pay back the IRS if you find that you owe more in taxes than you can handle.
The biggest benefit of a 401K is that you do not have to pay taxes on the money you are contributing. But when you are finally ready to take out this money you will find that things are not quite the same. Every withdrawal that you make from your 401K plan is taxed. On top of this, if you withdrawal your money before the age of 59.5 you are also going to incur an additional penalty. The early withdrawal penalty is 10 percent in addition to any money that you will owe in taxes. Additionally, if you leave a company after the age of 55 or become disabled you may be able to withdrawal money from your 401K without being hit with a penalty.
Generally speaking, 401K plans only allow any early withdrawal to deal with a financial hardship such as medical bills, losing your job, avoiding foreclosure, etc. It is very important to speak with your employer if you are interested in early withdrawal. Just remember, even if you are facing a financial hardship, early withdrawal is going to result in a penalty.
Plan for Tax Implications or Taxes Owed To IRS When Withdrawing from 401k It is absolutely necessary that you plan for the tax implications of withdrawing money from your 401K plan. This holds true no matter if you are taking money early, or you have waited until 59.5 or older. Every dollar that you withdrawal is going to be considered taxable income.
If you do not plan ahead you may find out when tax time rolls around that you owe the IRS a large chunk of change. Most people do end up owing additional money when they withdrawal money from their 401K because they did not have enough withheld from their paycheck. With the right planning you can be assured that you have enough money to cover any tax liability.
Are you well aware that you will not be able to pay the tax debt that you owe due to your 401K withdrawal? If so, you need to know all your options. The best one to consider is an installment agreement. This allows you to pay your taxes monthly as opposed to all at once. Setting up an installment agreement with the IRS is a simple process.
If possible, it would be in your best interest to wait until age 59.5 or older to withdrawal funds from your 401K. This way you will only owe tax on the money, and can avoid a 10 percent penalty. Always remember: the money you put into your 401K is not taxed. But you will pay taxes when you withdrawal the funds.
Help with IRS 401K Tax Problems There are many options available if you cannot pay in full the taxes owed in full to the IRS. Get your best options by requesting a free tax relief consultation from US Tax Shield so that we can help you resolve your tax debt problem today.
You Have a Right to Tax Representation If you have been contacted by the IRS or your state’s Department of Taxation, or have received tax liens, levies or notices of IRS intention to do so,