How to Cash Out a 401(k) in New Jersey

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The only difference in cashing out your 401k in New Jersey, compared to any other state, is accounting for New Jersey state income taxes. The process is otherwise the same and performed directly with your 401k plan administrator. The state of New Jersey has income tax brackets ranging from 1.4 to 8.97 percent at the time of publication. When taking money out, you will need to address this expense as well as the federal income tax expenses, which are as high as 35 percent.

Things You'll Need

  • 401k statement
  • Call your 401k plan administrator at the number designated on your statement and request a distribution form.

  • Complete the form, double-checking your name, address and account information. You don't want a large distribution check sent to an old address.

  • Designate any state and federal tax withholding in the appropriate section of your distribution paperwork. Standard withholding is 10 percent for federal taxes unless you elect otherwise. There is no mandatory state withholding requirement.

  • Sign the form and turn it in to the 401k plan administrator. The plan administrator processes the distribution within 10 days of receipt.

  • Obtain the 1099-R for the distribution to complete your tax returns. Box 2 states the taxable portion added to both your federal and NJ state tax returns.

Tips & Warnings

  • Some states allow income averaging up to 10 years for lump-sum distributions. New Jersey doesn't, therefore you need to add the entire distribution to income for the year the money came out of the 401k plan.
  • Check with a tax adviser if you have questions about current tax brackets and tax rates. Tax rules and regulations are constantly changing and should be reviewed prior to making any distribution decision.
  • Distributions made prior to age 59 1/2 are assessed a 10 percent federal tax penalty. No state penalties exist.

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