My retirement plan keeps 20% for taxes; if I withdraw my entire 401(k), will I get any extra funds when I file my federal income tax?
I am over 60 years old, and I have $50,000 in my 401(k), so there will be no penalty for early withdrawal. Is it best to wait to withdraw funds at the end of 2017 for tax purposes, or wait until next year and file with my 2018 taxes? My only other income in 2018 will be Social Security and it will be less than $25,000 per year.
1. The general answer to your question is that you need to sit with a tax planner and review your specific situation.
2. Whether you get the mandatory 20% withheld from withdrawing your entire 401(K) balance back is dependent on your entire tax scenario. I would consider moving your 401(K) to an IRA first, then pull the funds out as you need them. You might be able to avoid the mandatory 20% withholding this way. If you use an advisor to do this make sure you seek a fee-only fiduciary and NOT a broker.
3. You third question is one of timing, based on your current and expected future income. I am in a bit of a holding pattern as how to advise on this, we are on the cusp of a major tax overhaul that could impact when and how much you withdraw. Again, I recommend you consider moving the money to an IRA first, then determine how much you will move out of a retirement account.