401k

[Guest dblduo]

I am 66 years old and wish to retire.I want to close my 401k account but,am told that I must pay the 20% tax right now.Is there any way I can delay paying this until next years taxes?

[QDROphile]

20% withholding is taken from the distribution before it gets to you unless you roll over the funds directly to an IRA or other eligible retirement plan. If it is matter of tax planning, you should delay distribution or roll over to an IRA and take the distribution, or part of it, from the IRA according to your timing strategy. The 20% withholding rule applies to the IRA, too. States also have withholding rules that might apply.

Withholding is not the same as taxes. The withholding is credited against whatever tax liability you may have for the year of distribution, and you might get a refund of some of it, or you might have to pay more taxes relating to the distribution amount.

[GMK]

The 20% is withholding, like withholding on your pay checks. Your actual tax will depend on your income.

You have the choice of taking your IRA balance in cash paid to you or have it rolled over to an IRA. You can also choose to take some of the cash and roll the rest over.

Any amount you have directly rolled over to a traditional IRA is not taxed now, and nothing is withheld from the rollover amount. You will pay taxes on any amounts you take out of the IRA later, when you take them out of the IRA. Any amount that you could have rolled over but instead was paid to you is taxable income and subject to the 20% withholding.

When you reach age 70-1/2, you will be required to take distributions (payments) from the IRA. These Required Minimum Distributions (RMD) are taxable and cannot be rolled over. Uncle Sam wants his tax money eventually, and this is how he makes sure he gets it.

The 401(k) administrator should be able to give you detailed information about the tax consequences of receiving your 401(k) balance and information on rollover options. Contact the benefits people at your work and tell them you want the information and forms for taking a distribution from your 401(k) account.

Hope this helps.

Oops, QDROfile beat me to it.

[david rigby]

Start reading on page 8 of this IRS publication:

http://www.irs.gov/pub/irs-pdf/p575.pdf

BTW, you can order your own copy by calling 1-800-TAXFORM

[jevd]

20% mandatory does not apply to IRAs. Withholding is voluntary but a minimum of 10% if requested.