401K Question

I have a coworker she had 700 in a 401K. She didn’t roll it over when she quit her last job. Instead they closed it out the job took back it’s matching contribution, and gave her a check for about 225 dollars.

Now did they take the taxes back out of the orginal 700 or does she have to pay when she does her April taxes.

They should have given her documents detailing what they did. But one can surmise that:
(a) the part they “took back” wasn’t hers so she’ll owe no taxes on that.
(b)The $225K she received SHOULD HAVE BEEN net of Fedl withholding of 20%, so she probably has $281K of taxable income.

(Unless she absolutely needs the money now, she’d have been much better off rolling the account over).

The OP didn’t mention any K’s in those dollar amounts. So the benefit of rolling it over is debatable, especially since she wasn’t in the 401k long enough to vest.

Not really, since the rollover would have put the money into an IRA, which would have preserved its’ tax deferred status. Now she can only put 2k into an IRA and all of the extra money must be in a taxable account.

Ok, I went through something similar after a layoff back in May. Since I didn’t know where my next rent check would come from, I cashed out my 401K(all of $1700, 0% vested). When I took the cash out, a portion was taken out for taxes. I don’t remember quite how much I walked away with at that point in time-maybe around $1000. I am still waiting for my 1099 form that I will file with my taxes, declaring that income. I will probably have to pay additional taxes on it.

*Markxxx, your co-worker should receive a 1099. She needs to include this with her taxes. This should also detain how much tax was withheld from her cash out. If it wasn’t enough, then she’s going to have to pay in, or get less of a refund, whichever is the case.

(Now, it turned out that I got a new job relatively quickly, and didn’t have to worry about where rent was coming from. Not knowing that at the time, I chose the option that seemed best.)

I just experienced this situation. Earlier this year, after only 6 months working for a “City of”, my husband was released. He had been in CALPers, which is a totally state funded retirement program. They contributed 7% of his salary to this fund. Upon termination, he received his (their) contribution, which totalled $1680. It was federally taxed at disbursement at $336. Based upon one of the codes used on the 1099, my tax program “TaxCut” determined that there was also a penalty involved. The penalty was $168, which amounts to 10% of gross. So…we got dinged for 30%, so far. I haven’t even done the CA taxes yet, so I’m sure this number will go higher since we weren’t charged any State tax upon close out. I’d figure that 40% or so will be paid ultimately for accepting this disbursement, rather than rolling it into a new account. I have heard that 40% is pretty much standard in cashing out retirement accounts prior to age qualification.