Do You Have to File a Withdrawal From a 401k?
The 401k retirement account is an investment option for workers that is not subject to income taxes until the account holder withdraws funds for retirement. In nearly all withdrawal circumstances, the 401k account holder must file the money taken out on her income taxes. Individuals with 401k accounts file withdrawals only on their income taxes with the Internal Revenue Service. Withdrawals are not subject to state taxes.
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Income Taxes
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Any money you withdraw from your 401k under normal circumstances must be filed on your income taxes at the end of the fiscal year. If you are 59 1/2 years of age or older, or can no longer work, you can withdraw funds from your 401k account with no tax penalties. The 401k funds you withdraw each year are filed on your income taxes under "ordinary income." If you do not file your 401k withdrawal on your income taxes, the Internal Revenue Service will impose tax penalties and interest on any unpaid taxes on the 401k amount.
Additional Taxes
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If you withdraw money from your 401k and you are not disabled or at least 59 1/2 years of age, you must pay an additional 10 percent tax on your income taxes. The 401k is intended to be a long-term investment account for future retirees that defers income taxes until the account holder begins to withdraw at retirement age. Early withdrawal from a 401k is penalized by the IRS.
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401(k) Loans
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Some 401k accounts allow the account holders to take out temporary loans for personal financial hardships. Account holders can typically borrow only the amount they put into the account from wages. Money earned from interest is not available for loans. If a 401k account holder borrows from her account, she does not file the borrowed amount on her income taxes. Because the money is a loan and will be returned, the IRS does not require the account holder to pay income taxes on the 401k withdrawal.
Hardships
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Extreme financial hardships allow 401k account holders to withdraw from the account at any age without an additional 10 percent tax penalty. The account holder must still file the 401k withdrawal as "ordinary income" on her income taxes. For example, if a 401k account holder withdraws $10,000 for a medical emergency, she must file the $10,000 as "ordinary income." However, she will receive a tax deduction for the medical expenses that lowers her overall tax liability.
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