Anonymous asked in Business & FinanceTaxesUnited States · 2 months ago

If I received a tax deduction because of my 401k contributions, will I then have to repay the tax break I received, once I withdraw early?

6 Answers

  • 2 months ago

    Should you withdraw funds early, you'll pay income tax on the funds withdrawn and, in addition, will incur a 10% penalty for early withdrawal.

  • 2 months ago

    The money isn't included in income when you put it in but becomes taxable income when you take it out. 

  • Anonymous
    2 months ago

    You will pay income taxes on the amount of money withdrawn from the 401K.  The amount of income taxes you pay would be based on your income bracket - so there is no way to tell you what percent this will be.  

    You will also pay a 10% penalty for early withdrawal in addition to the income taxes.

    You will not repay any previous tax breaks created by having the 401K.

  • 2 months ago

    There is no deduction on contributions to a 401K.  The contributions are not taxed when earned.  That is different.  If you withdraw early, you pay all the taxes PLUS a 10% penalty.

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  • ?
    Lv 7
    2 months ago

    You will owe tax on the money whenever you withdraw from your 401(k).

    If you withdraw early, you will ALSO pay a 10% penalty.

    There is an exception in 2020 only for people who lost their jobs due to covid-19.

    In more detail:

    A tax deduction means you did not pay tax on some of your income the year that you earned it. When you withdraw the money it will count as income and therefore you will have to pay tax on it. But because the system is intended to tax rich people more, that same income incurs less tax in retirement than during a year that you have other income. And taking a large withdrawal will look like you have a very high salary, so the tax rate will be high.

  • Anonymous
    2 months ago

    You will pay more tax.  A lot more.

    Let's say you put 100k in your 401k.  You save the tax on the 100k.  

    Let's say when you withdraw it, it's worth 300k.   If you take a lump sum withdrawal, you're going to owe income tax on all 300k (not just the 100k).   And if you withdraw it early, you'll also owe an additional 30k (10%) penalty.

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