401K

8 Responses to I cashed out on a small 401K from a diffrent employer and all I got was a check 1700.. Out of 5400 in.. Why?

1. admin
   August 19th, 2009 at 6:48 pm
   When was the account valued at $5400? My 401ks have lost 20% of value in the past two months, down another 20-25% from this time last year (so down almost 50%).

   The FIT is Federal withholding that is sent to the IRS. When you file your taxes you will have to add the amount of the total 401 withdrawal (including the FIT they sent to the IRS) to your income. You will also be hit with a 10% early withdrawal penalty.

   401ks are funded with untaxed money. When you withdraw money, either now or at retirement age, you have to pay income tax on the amount you take out. If you make a withdrawal before retirement age you get hit with both taxes and penalty.

   Sorry.

   The way to avoid this would have been to directly transfer the 401 to another company without your ever touching the check.

2. admin
   August 19th, 2009 at 6:48 pm
   It should have only had 20% deducted, you will pay the rest of the taxes and penalties when you file your tax return. You may not have had 5400 in it when they cashed it out the markets are down right now. So if it was worth about 2,200 and they withheld 20% that would be about right. Make sure you save money to pay the taxes since you probably are in a high marginal rate maybe 15 or 25% and you have the 10% penalty if you are under 59.5 so your total tax bill will be more like 35% so keep back another 400 for the rest of the taxes and penalties.
3. admin
   August 19th, 2009 at 6:48 pm
   FIT is federal income tax. That means that 20% was withheld for federal income tax.

   Unless you rollover the money into another IRA, 401K, 456, 403B, etc., the entire amount withdrawn from the 401K, including the amount withheld for taxes, is taxable, whether or not you cash the check. There is no advantage to doing nothing with the check.

4. admin
   August 19th, 2009 at 6:48 pm
   You can call your former employer and ask for a copy of the plan document. It may be that you were not vested in the entire amount. If you subtract the $2,600, and then figure a market loss, the proceeds make sense.

   Of course you should cash the check. The check is the proceeds of your 401k. About $425 has been withheld for federal income tax (FIT). You will receive a 1099R for this distribution. Use it when you file your tax return.

5. admin
   August 19th, 2009 at 6:48 pm
   The FIT is federal withholding. Has the economy hit your retirement or did you have loans against it?

   Helen, EA in PA

   Additional answer - you may not have been fully vested in the plan so you would not get the entire $5400. That is the only other explanation I can think of. This should be your only check.

6. admin
   August 19th, 2009 at 6:48 pm
   Without seeing the statements it's hard to tell exactly what happened. But here's a guess>>>

   $5400 of which $2600 is profit sharing that you are 0% vested in so taxable distribution amount is $2800. You live in a state with an income tax of 10% which when combined with the mandatory 20% withholding gets you down to 1,960. Close but not quite…but a market decline after your last statement would account for the last $200+ drop.

7. admin
   August 19th, 2009 at 6:48 pm
   They took out 29% for Federal Income Tax. You better go back and make some visits to find out what happened to your money. Tell the other employees to watch out when they leave..
8. admin
   August 19th, 2009 at 6:48 pm
   You will still have state income taxes due (if not already taken out) and a 10% penalty paid at tax time.

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