vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"There is no penalty for foreigners but rather a 30% mandatory income tax withholding from distributions from 401(k) plans. You will ""get it back"" when you file the income tax return for the year and calculate your actual tax liability (including any penalties for a  premature distribution from the 401(k) plan). You are, of course, a US citizen and not a foreigner, and thus are what the IRS calls a US person (which includes not just US citizens but permanent immigrants to the US as well as some temporary visa holders), but it is entirely possible that your 401(k) plan does not know this explicitly. This IRS web page tells 401(k) plan administrators Who can I presume is a US person?   A retirement plan distribution is presumed to be made to a U.S. person only if the withholding agent: A payment that does not meet these rules is presumed to be made to a foreign person.  Your SSN is presumably on file with the 401(k) plan administrator, but perhaps you are retired into a country that does not have an income tax treaty with the US and that's the mailing address that is on file with your 401(k) plan administrator? If so, the 401(k) administrator is merely following the rules and not presuming that you are a US person. So, how can you get around this non-presumption? The IRS document cited above (and the links therein) say that if the 401(k) plan has on file a W-9 form that you submitted to them, and the W-9 form includes your SSN, then the 401(k) plan has valid documentation to associate the distribution as being made to a US person, that is, the 401(k) plan does not need to make any presumptions; that you are a US person has been proved beyond reasonable doubt. So, to answer your question ""Will I be penalized when I later start a regular monthly withdrawal from my 401(k)?"" Yes, you will likely have mandatory 30% income tax withholding on your regular 401(k) distributions unless you have established that you are   a US person to your 401(k) plan by submitting a W-9 form to them."
IRA and 401k are investment accounts. 401k accounts may be limited in what you're allowed to invest in more than the IRA, but still - these are investment accounts. The money you deposit in them - is invested, per your instructions.  What happens to it is up to you. When you leave your job, if you have some unvested match balance in the 401k, it may be refunded back to your employer, but your own contributions are always vested.
&gt; I would dare say that in most cases, people end up paying more in taxes, because they pay it as regular income rather than LTCG.  That's not how it works.  There's no LTCG tax on Roth accounts.  And on regular investment accounts you're taxed twice.  You first pay regular income tax and then pay LTCG tax on any gains.  The main advantage of 401ks is that you don't ever pay capital gains tax.  You're only taxed once on the money.
Your tax bracket is determined by your total taxable income in a given year, where money drawn from a traditional-style deferred-tax 401k or IRA is taxable income. (Money drawn from a Roth account was taxed before deposit and is not taxed when withdrawn after the relevant date.) Your recent salary history has no effect on this, except salary in the same year -- and there is no advantage to be gained by taking a deliberate pay cut for its own sake.
Yes, I think you will be able to withdraw from your 401(k) without penalty. Normally, you need to be age 59½ before you can withdraw without incurring a 10% penalty.  However, an exception to this rule is described in an IRS 401(k) Resource Guide: Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances: What this means is that if you leave the company that you have the 401(k) with in the calendar year that you turn 55 (or later), you can take early distributions from the 401(k) without penalty.  This year is the year that you turn 55, so it appears that you are eligible for early distributions under this rule.
"You pay tax on the entire amount, not just the capital gains.   When cashing out such a plan you would pay the top marginal tax rate on the full amount plus another 10% in penalties.  It is very likely that the additional income, of the balance withdrawal, will increase your top marginal rate.   It is impossible to come up with a precise answer as we don't know the following: However, you can take a concept away from this that is important:  You will be taxed and penalized on the entire 401K balance, not just the capital gain.   In the ""best case"" scenario, that is you had little or no income in a given year.  Under current tax law you would owe about 31% of your 401K balance in taxes.  As this is such an inefficient use of money most authors recommend against it except in the case of extreme circumstances."
"If you withdraw 401K then 10% penalty is applied. Also the amount you withdraw is considered as ""Income"" for that year. Whether you go back to India or Not, the amount is considered Income. Depending on the reason you state during withdraw, the Income tax (default @ 10%) might be ""withheld"" (Note: Sometime they may not withhold tax). If you are relocating to India, as per international tax rule (between India & US), when filing tax in India then you are supposed to show this as income (the 401K amount) and pay tax according to the total income including amount earned in India (could be upto 30%!!). If there was tax ""withheld"" in US, you can show it as International tax paid and pay the difference between 10% and your tax rate (upto 30%). If you are relocating to India, but still filing in US (it's possible) then 401K amount will be taxed at US tax rate (could be upto 35%).  In either case (filing in India or US) the amount ""Withheld"" can be shown as tax paid, but yet you will pay the tax difference (could be 20% or 25% more) as per the income for that year. You are not supposed to pay tax in two countries for the same year, as per regulations (might end up with Audit in both country). Hope it helps!"
The math works out so that the 401k is still a better deal in the long term over a taxable account because of the tax-deferred growth. Let's assume you invest in an S&P 500 index fund in either a taxable investment account or a 401k and the difference in fees is .5%. I used an online calculator and a hypothetical 1k/year investment over 30 years with 4.5% tax-deferred growth vs 5% taxable and a 25% tax bracket. After 30 years the tax-deferred 401k account will have $67k and the taxable account will have $58k. The math isn't perfect -- I'm sure I'm missing some intricacies with dividends/capital gains distributions and that you'll then pay income tax on the 401k upon retirement as you drawn down, but it still seems pretty clear that the 401k will win in the long run, especially if you invest more than the 1k/year used in my example. But yeah, .84% expenses on an index fund is robbery. Can you bring that to the attention of the HR department? Maybe they'll want to look for a lower-fee provider and it's in their best interest too, if they also participate.
"If I understand correctly, the Traditional IRA, if you have 401k with an employer already, has the following features: Actually, #1 and #2 are characteristics of Roth IRAs, not Traditional IRAs. Only #3 is a characteristic of a Traditional IRA. Whether you have a 401(k) with your employer or not makes absolutely no difference in how your IRAs are taxed for the vast majority of people. (The rules for IRAs are different if you have a very high income, though). You're allowed to have and contribute to both kinds of accounts. (In fact, I personally have both). Traditional IRAs are tax deferred (not tax-free as people sometimes mistakenly call them - they're very different), meaning that you don't have to pay taxes on the contributions or profits you make inside the account (e.g. from dividends, interest, profits from stock you sell, etc.). Rather, you pay taxes on any money you withdraw. For Roth IRAs, the contributions are taxed, but you never have to pay taxes on the money inside the account again. That means that any money you get over and above the contributions (e.g. through interest, trading profits, dividends, etc.) are genuinely tax-free. Also, if you leave any of the money to people, they don't have to pay any taxes, either. Important point: There are no tax-free retirement accounts in the U.S. The distinction between different kinds of IRAs basically boils down to ""pay now or pay later."" Many people make expensive mistakes in their retirement strategy by not understanding that point. Please note that this applies equally to Traditional and Roth 401(k)s as well. You can have Roth 401(k)s and Traditional 401(k)s just like you can have Roth IRAs and Traditional IRAs. The same terminology and logic applies to both kinds of accounts. As far as I know, there aren't major differences tax-wise between them, with two exceptions - you're allowed to contribute more money to a 401(k) per year, and you're allowed to have a 401(k) even if you have a high income.
All of your 401k income is taxable and no more than 85% of your SS income. You can use the worksheets in IRS: Publication 915 to determine what percentage of your SS is taxable. Just as with ordinary income, deductions/exemptions apply and not all that is taxable will be taxed. When you begin drawing SS you'll have the option to have taxes withheld at various rates, more convenient than quarterly estimated payments in my opinion.
"The ""Deferral"" for the 401k means that you're not collecting your pay immediately, but instead diverting it to a retirement account (Roth 401k in this case). This article defines deferral well: What is the difference between a regular 401(k) deferral (pre-tax) and a Roth 401(k) deferral?  Under either a regular 401(k) deferral or a Roth 401(k) deferral, you   make a deferral contribution by electing to set  aside part of your   pay (by either a certain percentage or a certain dollar amount).  For   a regular 401(k) deferral, the  taxable wages on your W-2 are reduced   by the deferral contribution; therefore, you pay less current income   tax.   However, you will eventually pay tax on these contributions and   earnings when the plan distributes the regular  401(k) deferrals and   earnings to you.  The result is that the tax on the regular 401(k)   deferrals and earnings is only  postponed.  A Roth 401(k) deferral is an after-tax contribution, which  means you   must pay current income tax on the deferral.   Since you have already   paid tax on the deferral, you won’t pay tax on it again when you   receive a distribution of  your Roth 401(k) deferral.  In addition, if   you satisfy cer tain distribution conditions, then you won’t have to   pay tax  on the earnings either.  This means  that the distribution of   the Roth 401(k) earnings can be tax free not just tax  postponed. Traditionally, this deferred compensation typically was directed to a 401k, but now that Roth 401k is another available option, deferred compensation can be directed there as well."
"There are a lot of unintended consequences of fairly arbitrary IRS guidelines when it comes to 401Ks, they both close and create tons of loopholes and many companies are left to implement their own policy around these laws. Ultimately what you are left with are a lot of random things, interpreted differently by every single company in the country, that aren't directly codified by the IRS or Congress. If you have a choice regarding what brokerage firm manages your 401(k), then just call around. Be sure to ask the pencil pusher on the phone to double check because they might say ""OF COURSE you can get paperless statements it is 2015"" but then when you sign up it becomes ""ooohhh sorry due to recent guidelines this kind of account isn't eligible for paperless statements"""
Read this.  https://www.irs.gov/retirement-plans/one-participant-401k-plans  The example makes it very clear.
Why would you want to withdraw only the company match, and presumably leave your personal contributions sitting in your ex-company's 401k plan? Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over part (or all) of your 401k assets into an IRA, and withdraw the rest for personal expenses.  If your personal contributions are in a Roth 401k, roll them over to a Roth IRA, but, as I remember it, company contributions are not part of the Roth 401k and must be rolled over into a Traditional IRA. Perhaps this is why you want to take those in cash to pay for your personal purchase? Also, what is this 30% hit you are talking about? You will owe income tax on the money withdrawn from the 401k (and custodians traditionally withhold 20% and send it to the IRS on your behalf) plus penalty for early withdrawal (which the custodian may also withhold if you ask them), but the tax that you will pay on the money withdrawn will depend on your tax bracket, which may be lower if you are laid off and do not immediately take on a new job. That is, the 30% hit may be on the cash flow, but you may get some of it back as a refund when you file your income tax return.
"Did I do anything wrong by cashing a check made out to ""trustee of   <401k plan> FBO "", and if so how can I fix it? I thought I was just   getting a termination payout of the balance. Yes, you did. It was not made to you, and you were not supposed to even be able to cash it. Both you and your bank made a mistake - you made a mistake by depositing a check that doesn't belong to you, and the bank made a mistake by allowing you to deposit a check that is not made out to you to your personal account. How do I handle the taxes I owe on the payout, given that I had a   tax-free 1099 two years ago and no 1099 now? It was not tax free two years ago. It would have been tax free if you would forward it to the entity to which the check was intended - since that would not be you. But you didn't do that. As such, there was no withdrawal two years ago, and I believe the 401k plan is wrong to claim otherwise. You did however take the money out in 2014, and it is fully taxable to you, including penalties. You should probably talk to a licensed tax adviser (EA/CPA licensed in your State). My personal (and unprofessional) opinion is that you didn't withdraw the money in 2012 since the check was not made out to you and the recipient never got it. You did withdraw money in 2014 since that's when you actually got the money (even if by mistake). As such, I'd report this withdrawal on the 2014 tax return. However, as I said, I'm not a professional and not licensed to provide tax advice, so this is my opinion only. I strongly suggest you talk to a licensed tax adviser to get a proper opinion and guidance on the matter. If it is determined that the withdrawal was indeed in 2012, then you'll have to amend the 2012 tax return, report the additional income and pay the additional tax (+interest and probably underpayment penalty)."
It is not a dump question because it concerns your most important invisible financial partner:the taxman. The answer depends of the legal status of this account. If your account is 401(k) in USA or RRSP in Canada, the answer is no. No capital gain taxes if your money is registered for retirement. You'll pay later on, as taxes are like death, unavoidable. Yes capital gain if your money is not in an retirement account. As soon as you realize a capital gain, it becomes taxable in that fiscal year.
As you already mentioned, a traditional 401K is tax-deferred, so you don't pay any taxes on the money in the account until you retire.  A Roth 401K has already been taxed, so you don't pay taxes on withdrawal (assuming you withdrawal after 59 1/2 years of age) The Roth 401K is advantageous if you believe you'll be in a higher tax bracket than you are currently. This applies more so if you're out of school and your income is relatively small, but you think in 10-15 years you'll be making enough money to fall into the next tax bracket.  In essence, you can use a Roth 401K as a way of diversifying your retirement money across different tax structures. References: http://www.investopedia.com/terms/r/roth401k.asp http://www.marketwatch.com/story/is-a-roth-ira-better-than-a-roth-401k-2014-03-21
"&gt;Me: ""they pay it as regular income rather than LTCG"" &gt;You: ""There's no LTCG tax on Roth accounts.""  Those two things aren't the same thing.  Among other problems, you were referring to tax-deferred accounts and I was referring to Roths.  &gt;Me: ""they pay it as regular income rather than LTCG"" &gt;You: ""You're only taxed once on the money""  Again, those are not the same thing.  There is no account out there where you would only pay LTCG tax.  So paying the tax as regular income RATHER than LTCG tax is not a concern.   &gt;Me: ""they pay it as regular income rather than LTCG"" &gt;You: ""The main advantage of 401ks is that you don't ever pay capital gains tax.""  Again, the word ""rather"" means there were two possible scenarios: paying regular income tax and paying LTCG tax.  This simply isn't true.   &gt;I never mentioned Roth or taxable funds   Well, those are the only alternatives to a tax-deferred account, so...  &gt;""Though what I said does also apply to Roth""  No it doesn't.    &gt;""But please, keep digging...""  Nothing to dig for.  This isn't a difficult concept but for whatever reason you clearly don't understand it."
"The abysmal stats on personal savings concern me the most.  When push comes to shove, these people will vote to steal from those of us who made wise financial decisions and were responsible savers.  Forced draw downs of 401k's before retirement age?  Taxation on internal gains in retirement plans?  ""Wealth"" taxes on retirement balances?  It's coming in some form or another.  Stay vigilant!"
You can have Roth 401(k)s and Traditional 401(k)s just like you can have Roth IRAs and Traditional IRAs. The same terminology and logic applies to both kinds of accounts. As far as I know, there aren't major differences tax-wise between them, with two exceptions - you're allowed to contribute more money to a 401(k) per year, and you're allowed to have a 401(k) even if you have a high income. (By way of contrast, people with very high incomes generally aren't allowed to open IRAs). A primary advantage of a Traditional IRA is that you can (in theory, at least) afford to contribute more money to it due to the tax break you're getting. Also, you can defer taxes on any profits you make (e.g. through dividends or selling stock at a profit), so you can grow your money faster."
The tax deferred status of a 401k plan helps you in theory because your tax rate will be lower once you retire and start drawing the money.  This theory could prove incorrect. Also the money you add to a 401k lowers your taxable income today so you end up paying less taxes to the government right now.  Depending on where you are in the tax bracket scale that could have the affect of lowering your tax bracket which will save you money in other areas. Each person's situation is different by my general theory is to contribute towards retirement in the following order: Hope this helps.
"tl;dr Roth earnings are not necessarily ""tax deferred"", but they might be. This is a great question because IMHO, the use of the wording ""tax deferred"" is slightly misleading when talking about a Roth IRA (and Roth 401k too). The phrase ""tax deferred"" actually means you save tax now and you pay tax later, i.e. you ""defer"" the tax. As you pointed out, this is the normal terminology used for describing a Traditional IRA/401k. Earnings on a Roth IRA are tax free (not deferred), but only if your distributions are qualified. For the most part distributions are considered qualified if you wait until you are 59.5 years old before taking the money out, but there are some exceptions. If you choose to distribute more than your contributions, meaning you are now taking out earnings, the earnings are tax free only if your distribution is qualified. For example, if you take out the earnings before you are 59.5 (and no other exceptions apply), then you would pay tax on the earnings and also a 10% penalty. So, perhaps a better way to say it is that earnings in a Roth IRA are ""conditionally tax deferred""."
If you withdraw money, even under a hardship clause like for purchasing a house, you'll still own taxes and a penalty on it.  If you are talking about a 401K loan, a loan will have no taxes/penalty, but you'll repay the loan with after-tax reduction of your salary. Max is 50k or 50% of the balance. It maybe up to the 401K administrator whether all of the funds need to go to the down payment and closing costs or whether some can go towards renovations.
I'm not a big fan of tax-advantaged retirement accounts. The rules on tax-advantages accounts can change at any time.  It's already painful to get money out before retirement (earnings or possibly contributions taxed as current income, plus 10% penalty).  The rules could get worse. There's also the assumption that your taxes will be lower when you retire.  I think this is a poor assumption. If you get free money from your employer for contribution to a 401(k), contribute up to what will get you all of the free money you can.  Otherwise, pay your taxes and keep control of your assets. So short answer: Keep as much as you can out of tax-advantaged accounts unless you're turning down free money to do so.
You can't say I'm wrong and then go on to explain why exactly what I said is correct.  :)  You (and I) are in complete agreement that there's no LTCG on either Roth *or* Traditional 401ks, because you pay both as straight income - The former up front, the latter when you withdraw it.  My point was that, for virtually everyone, their regular income tax rate is **higher** than their LTCG rate.
"You should call your plan administrator and ask. Few plans allow people to take a ""hardship withdraw"" after leaving because their is no way to pay the funds back since you are no longer working there. The repayment process is done via payroll deduction usually. Also you will most likely be required to withhold 20% for taxes from the 401k. There is no way to defer the taxation unless you take it  next calendar year. You may want to consider doing a rollover into an IRA and taking the w/d and you can do a 60 day rollover. You only get 1 per rolling 12 months now (rather than account do to a change in the rule.) IRA's (not 401k) do give you flexible withholding so you don't have to pay taxes today though they would still be in the tax year based on the calendar date taken out, so if you take it out in 2015 your going to be paying them at the end of this year when you file in April of 2016. Your question seems to be mixing characteristics of both 401k and IRA and while they are similar they do operate very differently."
Let me throw in one more variable to consider. Company 401K plans typically have MUCH higher fees than you are likely to get if you shop around on your own as long as you don't go with a high dollar broker. You won't see these fees on your statements typically, which I think is criminal, but they are hidden in the prices of the funds you are buying in the 401K.  If you don't believe me, get the quotes for a fund from the 401K company's web-site then look up the same fund on a site like MSMoney. The share prices won't match and you will be angry until you come to terms with it. So if you have a choice of money in a personal retirement account versus a 401K always go with your own account... UNLESS:   or