How Much Will My 401K Be Taxed?

1. 

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   George Rodriguez

   Insurance advisor, Transamerica, Chicago IL

   It depends on what income bracket you fall into, meaning it will be taxed like ordinary income, but if  you take it out before 59 1/2 you will have to pay a penalty and federal and state taxes. Your actual federal tax rate will depend on your ordinary income tax bracket, which is more commonly 25% -28% for middle income Americans. PLUS you will pay an additional 10% penalty AND state income taxes. In short, it is not a savings plan and specifically for long-term, retirement accumulations. If you use it for other purposes, you will lose 40-50% in taxes. However, upon retirement you will pay only ordinary income taxes, without the penalty very much like you do with your current paycheck. The 401(k) is designed to replace that paycheck when you are too old to work.

   Answered on July 7, 2014

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   Barry Goldwater

   Principal, Goldwater Financial Group, Boston

   Your 401k will be taxed at the same tax rate as your salary is or was taxed at unless the income from your 401k falls below what your salary used to be and that positions you in a lower tax bracket. In that case, your tax would be less because your income would be less.

   Answered on July 8, 2014

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