I left my employer 2 years ago and have ?only a little over $2k in the account. It’s a 457 b. I’m only 24 but I want to withdrawal it, however I’m worried about consequences. I know I won’t pay 10% fee but will pay 20% federal taxes and 4.5% state. But will the IRS punish me later for doing this? Also when I’m withdrawing it, it says “do you want to do more than 20% federal tax? You cannot do less than 20%.” Why in the world would anyone want to do more? Is it because they can tax me more on it later? I’m just wanting t be sure I’m not gonna be screwed for doing this. I have 3 other retirement accounts so I don’t need 4 and I am a student so the 2k is worth paying the fees for me rn. But not if it’s gonna finically ruin me bc of repercussions.

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Rave-Unicorn-Votive t1_jecpy21 wrote on March 31, 2023 at 1:29 AM

>Why in the world would anyone want to do more?

Because their marginal rate is higher than 20%. If you're in the 37% bracket and only withhold 20% it won't be enough.

>I have 3 other retirement accounts so I don’t need 4

You can roll it over. Account consolidation is preferable to raiding your retirement.

Overthinkingopal OP t1_jecu673 wrote on March 31, 2023 at 2:02 AM

Thank you this is super helpful.

nkyguy1988 t1_jecpshx wrote on March 31, 2023 at 1:28 AM

The 20% is just the prepayment withholding. What you owe will be based on your income tax rate. Why do you think you won't pay the tax rate plus the 10% penalty?

Overthinkingopal OP t1_jectt6a wrote on March 31, 2023 at 1:59 AM

From what I’ve read online and what the people at MERS told me there is no 10% penalty for this type of account. Just the 20% tax and 2.4% state.

nkyguy1988 t1_jecv7ko wrote on March 31, 2023 at 2:10 AM

Forgot you said 457. That would be true. Depending on your income tax rate, your actual tax obligation may be more or less than 20%. Considering there isn't a tax bracket that is 20%, it's highly likely you either over or under pay. Withholding on withdraw does not equal your final tax obligation.

Missus_Aitch_99 t1_jecptz8 wrote on March 31, 2023 at 1:28 AM

It’s because you can incur a fee for underwithholding if you owe too much in taxes at the end of the year. You’re supposed to pay estimated taxes in the quarter in which you received the income.

Overthinkingopal OP t1_jecty8r wrote on March 31, 2023 at 2:00 AM

Okay so like how when you fill out a w2 if you do 0 withholdings you are likely to get more of a tax return than someone in the same pay and job as you that has everything withheld and likely will owe?

Missus_Aitch_99 t1_jecu7vy wrote on March 31, 2023 at 2:02 AM

Yes. And the money you get back is a refund, not a return. The tax return is the form or set of forms you submit.