How do I avoid the 20% tax on my 401k withdrawal? 

• Take out a series of substantially equal periodic payments (SEPPs) instead of a lump sum. If payments are made at least annually, they are not subject to the 20% withholding.
• Roll over the funds to another retirement account.
• If you need funds for a qualifying hardship, like for expenses related to repairing damage to your home, preventing foreclosure or eviction, a funeral or burial, or unreimbursed medical expenses, take out a hardship withdrawal.
• If your plan allows it, take out a loan from your 401(k). Typically, you’ll be required to pay back what you borrow within 5 years, and the interest you pay goes directly into your account.

It’s important to note that the 20% withholding is not extra tax, but rather a prepayment toward the federal tax you owe on the withdrawal of a lump sum. If you end up owing less than 20%, you’ll get the rest back as a tax refund.

Have questions or concerns about the 20% withholding on 401(k) withdrawals, or about how these withdrawals are taxed? Don’t guess. Talk taxes with the pros for real answers to your biggest tax questions. Book your appointment today.