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Information on Declaring 401K Income
Thursday, Apr 10, 2008
Question: My husband who is 60 withdrew money from his 401k (a previous employer) to purchase a retirement home. He paid federal and state taxes at the time of withdrawal and of course was of legal age to do this. Our question is how do we go about claiming this on our taxes? Will this be considered a separate claim or will we have to add the amount withdrawn to our income base. We both still work full time although for different employers now. We are very nervous this will put us into a high tax bracket that will hit us hard for more federal and state taxes. Please let us know how to handle this for our best outcome if there is one.
Answer: Whenever you make a withdrawal from your 401K plan (known as a "distribution"), you will receive a Form 1099-R reporting the distribution from the 401(k) pension plan by January 31 of the year following the year of distribution. Form 1099-R is an Internal Revenue Service (IRS) form
with which an individual reports his or her distributions from annuities. The following are some of the items included on the form: the gross distribution paid during the given tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld, the contributions made to the investment or premiums paid, and a code that represents the type of distributions made to the holder of the plan.
Your husband would have received this form from the plan custodian, who sends the form to the owner of a plan if he or she has made distributions of $10 or more from the plan
Your husband would have received this form from the plan custodian, who sends the form to the owner of a plan if he or she has made distributions of $10 or more from the plan
in a given year. Your will then have to attach a copy of Form 1099-R to your tax returns. Whether this will put you in a higher tax bracket or not is a question only a tax professional can will be able to answer after he has examined all of your information (such as your individual W2 forms), but you will have to declare this income on your tax returns for the year that you made the withdrawal in. I suggest that you consult with a qualified tax professional to find out more about the implications of this withdrawal.
I hope the information provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
I hope the information provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
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1. Posted by Kim O'Brien on Thursday 15th May 2008 05:48
My mother, age 60, wishes to withdrawal her 401k money and no longer contribute. Is that possible? She does not want to borrow, she wishes to withdrawal and stop contributing. What does she have to do and is that possible for her to do?
2. Posted by Bill on Thursday 15th May 2008 08:54
As your mother is above the age of 59 1/2, she can definitely withdraw her 401k savings. She will need to contact her plan administrator at work to follow up for the withdrawal request. Just bear in mind that whatever the amount she withdraws, it will be added on to her yearly income and she will be taxed according to the prevailing rates.
3. Posted by Darlene K Hunt on Friday 17th April 2009 13:32
My husband is retired, his birthday is 12/1941. Is he considered "full retirement age"? He wants to withdraw the lump sum from his 401K and needs to know if there is an earnings limit for his retirement age?
4. Posted by Bill on Monday 20th April 2009 09:49
Your husband can make the lump sum withdrawal as he is well over the age of 59 & 1/2. There is no such thing as an 'earnings limit', but it is common for people to spread their withdrawals over a period of few years so that the taxation does not get too heavy. For example, if your husband has $100,000 in his 401k savings, he can withdraw the entire amount. If he made $40,000 from other sources, then he would have to add this amount to his regular income. Therefore he would end up paying taxes for $140,000 (as per the tax brackets).