Tuesday, October 30, 2012

Tax Ramifications due to Distribution from 401K Account


How much will I pay in taxes when I take a distribution from my account?


When you take a distribution from your account, you'll pay ordinary income tax plus a 10%
penalty if you're younger than 59½. In fact, cashing out a $10,000 401(k) account could leave you with $7,000 or less due to taxes and penalties. In addition, you are losing out on compounding potential. So think twice before taking a distribution, it could cost more than you think.

The cost of lost time
If you cash out your 401(k)'s $10,000 balance with 30 years to go before you retire, you are potentially missing out on $100,627 for your retirement, assuming an 8% before-tax average annual rate of return. It does not reflect the return of any investment, which will fluctuate.
Regular investing does not ensure a profit or protect against a loss in a declining market.
Talk to your Naperville Tax Accountant, Susan S. Lewis for advice.

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