I withdrew my money from a 401. I was taxed at 20%. I know I can claim the income tax paid, but...
does the amount I received have to be claimed as income on my income tax.
yes ,this is considered capital gains though, which pays a lot lower tax than earned income ( from working). there should be two seperate places to add the two different values.. as far as the tax paid, there should be a line to report that tax that was payed out so you will not be double taxed on that capital gains amount from the 401
the two values will be your total gross earnings ,and after taxes paid or to be paid will be your net earnings( what you actually netted in cash) after the (eraned income) tax ( and the already paid capital gains)taxes .
I have bad news and worse news. The money withheld will not be enough to pay the taxes really due. You have a deposit in the amount withheld at the IRS, if you will. However, taxes on early withdrawal from a retirement account are also assessed a penalty of 10%.
Now the worse news. If you live in a state with an income tax, you may be assessed state income tax. Some states, like Wisconsin, add another penalty for early distributions from a retirement account.
It is common to pay over half the retirement distribution in tax and penalty. I see it all too often.
Another note: Money in your retirement account is exempt from bankrupcy. Taking the money out kills your retirement and you took protected money and threw it away.
My advice: Never take money from a retirement account until retirement.
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