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Asked 7/13/2009
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I live in Minnesota. If I cash in a 401 K in 09 will I also owe state income tax on the money as well as the federal tax? The amount I have estimated the penalty and tax for married filing separate to be approximately $26500. If I pay MN state tax as well it would be another 8% of the $78000 or $6240. I am not sure if this is a correct estimate. |
Answer 1/1 - Submitted 1/23/2012
Due to the nature of a 401K being composed solely of "Pre-Tax Dollars" , these monies immediately become taxable income upon withdrawal of said funds from your structured retirement fund. There are a couple of exceptions to the rule: The funds are rolled into an IRA within 6 months of the distribution, distribution occurs after separation of service and plan holder is age 55 or older or if the early distribution is made because you have become totally and permanently disabled.
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