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I will be moving out of the country soon and I have some money saved on a 401k. I plan on doing an early withdrawal and I am aware that I will have to pay the 10% penalty.

I was wondering how the rest would be taxed. Will I have to pay Social Security, Medicare and CA SDI or will it be federal and state only?

Also, will I be taxed on the amount I withdraw or will I be taxed on the amount minus the penalty?

Thanks a lot!

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  • Just to make sure - this is not a Roth 401k, right? Regular pre-tax money in it?
    – Joe
    Oct 22, 2015 at 21:05
  • Yes, it is a regular pre-tax money 401k. I would naturally believe I need to pay the exact same taxes as what I would have paid had I not used a 401k but information out there is confusing.
    – RaySF
    Oct 22, 2015 at 21:14

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401(k) withdrawals - early or otherwise - are not subject to FICA or Medicare taxes. That's because they already were taxed when they were contributed. (And of course, the earnings from the 401(k) contributions are not earned income and thus are not subject to payroll taxes for that reason.)

While 401(k) contributions are exempt from federal (and generally state) income taxes, they aren't exempt from payroll taxes - and as such, you'll see two separate amounts on your W2 and paystub if you contributed: the amount that is subject to those taxes, and the amount that is subject to income tax.

So, no, you don't have to pay payroll (FICA, Social Security) taxes on your early withdrawal. As for the penalty, that is basically an extra tax - so if you withdraw $1000, you pay income tax at your marginal rate plus 10% penalty; if your marginal rate is 25% [and you're not moving across a rate step boundary], you will pay 25%*(1000) + 10%*(1000).

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    +1 but it is worth noting that it is most 401(k) participants' hope that the amounts that they withdraw from their 401(k) is more, perhaps much more, than the sum total of what they contributed, and these earnings within the 401(k) have not been subject to Social Security or Medicare taxes the way the contributions have, and yet they still are not subject to SS and Medicare tax when withdrawn (whether early or later).
    – Dilip Sarwate
    Oct 23, 2015 at 1:45
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    Would be good to add something about what Dilip is saying. FICA is a tax on earned income (i.e., payment for work). No matter how much your capital gains on the 401k, you don't ever pay FICA taxes on those gains because they aren't earned income.
    – BrenBarn
    Oct 23, 2015 at 2:14
  • @BrenBarn Correct. And just to be clear for anyone else reading, this is true for all investment income, tax advantaged or not: Roth 401k, IRA, mutual funds purchased outside of a 401k/IRA, interest on savings accounts, taxable gains on Real Estate, etc.
    – KeithB
    Oct 23, 2015 at 15:38
  • Added clarification on the earned income side.
    – Joe
    Oct 23, 2015 at 15:39

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