When someone retires, he then has to pay income tax on his 401(k). Do you also have to pay capital gains?
No. When your money comes out of your 401(k), it is treated as ordinary income. Depending on your tax bracket, the amount of taxes will vary. Since you pay the regular income taxes, there are no capital gains.
What are the penalties for cashing out my 401(k) account?
The Federal Government is going to automatically withhold 20% of the distribution amount for taxes. In addition the Federal Government will withhold 10% as a tax penalty if you are not 59 ½. When you file your taxes, you will have to claim the distribution as income and pay any extra federal and state taxes required.
Note: You may not cash out your 401(k) account while you are still employed by the company where your 401(k) is located.
Who can be named as a beneficiary on my 401(k)?
If you are married, your spouse must be named as your primary beneficiary. The exception is if your spouse signs a consent waiver that surrenders that right.
If you are single, you may name anyone you wish, including minor children.
A contingent beneficiary may be named. The contingent would receive the benefits if anything happened to the primary beneficiary before or at the time of the participant's death.
Can my spouse take money from my 401(k) without my knowledge?
No. Your spouse has beneficiary rights upon your death and may be entitled to a portion of the benefits in the case of divorce, but cannot withdraw money from your plan without your knowledge.
