Recently turned 65, retired and living on Social Security and a small pension. I wish to close out my 401k account, take a lump sum distribution (25,000) and pay off my mortgage. I understand that 20% will automatically taken for the IRS. Since this first year of retirement will show no taxable income will I be refunded the IRS deduction?
1 Answer from Attorneys
Check if you can with the institution making the distribution to be sure the election or option to not withhold does not apply to your situation. Second, the distribution will increase your taxable income by $25K, so make that calculation, because part of the withheld amount may still be due as taxes. Lastly, you can apply for a refund if the amount withheld exceeds the income taxes owed. Sorry, I cannot be more specific in my response without all the facts involved.
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