16 Sep Will a 401(k) withdrawal put me in a higher tax bracket?

Q. I’m planning to take money from my 401(k) under the CARES Act. Will this be added to my income for 2020 and put me in a higher tax bracket?
— Struggling

A. Potentially.

The CARES Act gives you some options when it comes to early withdrawals from retirement accounts.

You may take up to $100,000 from retirement accounts without penalty for coronavirus-related reasons, such as if you were sick or lost your job because of the pandemic.

But you will have to pay taxes, said Jonathan Donenfeld, a certified public accountant with JLD Tax & Accounting in Jersey City.

The law allows you to pay it all in one year, or you can spread the payments out over three years.

You can also take three years to pay back the early withdrawal, in which case you would get a refund on any taxes paid.

But assuming you don’t pay it back, you will owe taxes.

“401(k) withdrawals are added to your taxable income, and depending on the amount, could move you to a higher tax bracket,” Donenfeld said.

We recommend you speak to a tax preparer who can review your income and what a distribution would mean for your overall tax liability.

See more about tax brackets on the IRS website.

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This story was originally published on Sept. 16, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.