How to Calculate the Income Taxes on a 401(k) Withdrawal

Step 1

Estimate your taxable income for the year. Because the IRS employs a progressive income tax, the amount of tax you pay will be higher for someone who has a high income than someone with a low income. When estimating your taxable income, add all of your taxable income for the year, such as wages, salaries and interest, and subtract any income tax deductions you will claim, such as student loan interest, the standard deduction or the sum of your itemized deductions.

Step 2

Look up your tax bracket in IRS Publication 17 (see Resources) based on your estimated taxable income. The income tax brackets differ based on your income tax filing status. For example, you will pay a lower rate if you file as head of household than you will if you file as single. For example, if you filed as single for the 2010 tax year with $100,000 of income, you would fall in the 28-percent tax bracket.

Step 3

Multiply the amount of your 401k plan withdrawal by your marginal income tax rate. For example, if you took out $20,000 and fall in a 25-percent income tax bracket, multiply $20,000 by 0.25 to get $5,000 in income taxes.

Step 4

Add a 10 percent penalty to the amount of your federal taxes if you are taking a nonqualified distribution from your 401k plan and do not have an exemption, such as a permanent disability. Nonqualified distributions include all distributions before age 59 and a half. For this example, if you took a nonqualified distribution, multiply 0.1 by $20,000 to get a $2,000 additional income tax penalty.

Step 5

Multiply the amount of your 401k plan withdrawal by your state income tax rate. For example, if your state tax rate equals 5 percent, multiply $20,000 by 0.05 to find you owe $1,000.

Step 6

Add your federal and state taxes along with any early withdrawal penalties to find your total taxes on your 401k plan withdrawal. Completing the example, add $5,000, $2,000 and $1,000 to find the total taxes and penalties equals $8,000.