The pandemic hit many families’ finances hard. So hard, more than a million families took money out of their 401(k) accounts. Consumer Investigator Chris Chmura explains how this changes the way you fire taxes.

Stay connected:
Follow us on Twitter:
Like us on Facebook:
Follow us on Instagram:
Add us on Snapchat @NBCBayArea

Catch up on all the day’s news:

Download our app:
On iOS:
On Android: …(read more)

LEARN MORE ABOUT: 401k Plans

REVEALED: Best Investment During Inflation

HOW TO INVEST IN GOLD: Gold IRA Investing

HOW TO INVEST IN SILVER: Silver IRA Investing

Explained: How to File Taxes After 401(k) Withdrawal

If you’ve recently made a withdrawal from your 401(k) account, it’s important to understand the potential tax implications and how to properly report the income on your tax return. 401(k) accounts are tax-deferred, meaning that contributions are made with pre-tax dollars and the funds grow tax-free until withdrawn. However, once you start taking distributions from your 401(k), you will need to report the income on your tax return and may owe taxes on the amount withdrawn.

Here’s a guide on how to file taxes after a 401(k) withdrawal:

1. Understand the Tax Treatment of 401(k) Withdrawals
The tax treatment of 401(k) withdrawals depends on the type of plan you have. If you have a traditional 401(k), withdrawals are taxed as ordinary income. If you have a Roth 401(k), qualified distributions may be tax-free. It’s important to know the specifics of your 401(k) plan and consult with a tax professional if you have any questions.

2. Receive Form 1099-R
When you take a distribution from your 401(k) account, you will receive a Form 1099-R from your plan administrator. This form reports the distribution and any federal income tax withheld. You will need to report this information on your tax return.

3. Report the 401(k) Withdrawal on Your Tax Return
You will need to report the 401(k) withdrawal on your tax return. If you have a traditional 401(k), the amount of the distribution will be included in your taxable income for the year. If any federal income tax was withheld from the distribution, it will be credited towards your tax liability when you file your return.

4. Consider Early Withdrawal Penalties
If you are under the age of 59 ½, any early withdrawals from your 401(k) may be subject to a 10% early withdrawal penalty in addition to regular income tax. There are some exceptions to this rule, such as for certain medical expenses or if you are using the funds for a first-time home purchase. Be sure to understand the potential penalties before taking a withdrawal from your 401(k).

5. Plan for Estimated Taxes
If you anticipate owing taxes on your 401(k) withdrawal, you may need to make estimated tax payments throughout the year to avoid underpayment penalties. Your tax professional can help you determine the appropriate amount to pay in estimated taxes based on your individual situation.

6. Consider Rolling Over the Funds
If you took a distribution from your 401(k) for a specific purpose but have since found a different source of funds, you may be able to avoid the tax consequences by rolling over the amount of the distribution into another retirement account within 60 days. This can help defer the tax liability and keep your retirement savings intact.

In conclusion, filing taxes after a 401(k) withdrawal can be complex, especially if you are not familiar with the tax treatment of retirement account distributions. It’s important to understand the potential tax implications and seek guidance from a tax professional if you have any questions. Properly reporting 401(k) withdrawals on your tax return can help you avoid penalties and ensure compliance with tax laws.