Money Management

Money Management

Retirement Fund

by Karen
(Corbin, KY)




I have an old retirement fund from my previous job that I have not transferred into my new fund. It is only worth about 10,000 dollars and I am considering cashing it out to pay for some medical bills and my daughters wedding. I know that it will be taxed and that there are penalties for cashing them out so my question is:

Will they tax it when it is cashed out or at income tax time, how much of a penalty will I have to pay and what kind of affect will cashing it out have come income tax time?




Comments for
Retirement Fund

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You will get taxed when you take the money out of your fund
by: Melanie

Hi there,
Thanx for your question and I will assume that you are in the USA (Kentucky as per your post)and are under 59 1/2 years old.

To answer your questions:
"Will they tax it whe it is cashed or at income tax time?"
- You will have to pay 10% federal tax and your employer will withhold 20% in tax

"How much of a penalty will I have to Pay?"
- The penalty for early withdrawal is also 10%

"What kind of affect will cashing it out have come income tax time?"
- You will reconcile your tax owed based on what was withheld etc. So if you had too much tax withheld then it will will produce a refund. But if you didn't pay enough tax on it then you will owe more on it.

It's not a great idea to take the money out. The penalties and taxes will take that $10,000 and turn it into about $6,000 for you. It is better to leave it in and let it earn interest. Then take it out when you are older and there are no penalties etc.

Regarless check with your plan administrator and ask an expert in your area.

Good Luck with your choice!
Melanie

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