Living Will Nebraska
What penalties will a coworker encounter if he spends 401(k) money from leaving a job in Nebraska?
I have a co-worker leaving his job and will live off his 401(k) money that he built up over the course of 10 years. I feel he is fool for doing this cause of the taxes and penalties that doing so will occur. Can someone give me an example of $10,000.00 that was saved up is likely to be taxed and penalties assessed?
Here is what is going to happen:
For starters they will keep 10% and immediately send this amount to the IRS.
This only pays for the penalty. and your friend now only gets 9,000 but has to claim 10,000 as income for the year.
the whole amount (including the 10% penalty) will be added to his yearly gross income and then he gets to pay taxes on the whole thing again. The bank will issue him a 1099 and he needs to add the amount to what his W-2 for the year shows.
So if he had an income of 10K for the year from his job and paid taxes for it he is forced to add another 10K from the 401K pay out (gross) and now he owes taxes for 20K. In most cases he will now owe money to the IRS because he only paid taxes on half of that plus the added income can easily catapult him into a higher tax bracket and now he owes more taxes on top of it.
Oh… I forgot he also owes taxes to the State… on the 10,000. So not only is he going to owe money on his federal taxes he will also owe around 3% of that money to the State.
Trust me… not worth it.
Arts in Nebraska – Mark Gilbert
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