How is the 10% penalty tax calculated?
The 10% penalty applies to the entire untaxed amount that you withdraw. If you withdrew $5,000 from your 401(k) before you were 59 , you would owe a penalty of $500, plus applicable federal, state and local taxes on the entire $5,000. If you’ve made after-tax contributions to your 401(k), it gets a bit more complicated. You do not have to pay the 10% penalty or any additional taxes on the amount of your after-tax contributions. You do, however, have to pay the 10% penalty and all taxes due on any interest earned and employer-matching contributions made as a result of your after-tax contributions. If you’re thinking “I’ll just take out my after-tax contributions and leave the earnings where they are” nice try, but no dice. For every after-tax contribution dollar you withdraw, the IRS requires you to withdraw a proportional amount of the earnings, too. top What if I need the money in an emergency – Can I take out a loan? Your 401(k) plan is intended to be a long-term investment plan, but
