Uncle $am

For the first time in my taxpaying life, I had to pay in to the system this year. Not a buck or two either, almost 900 bucks. Over the past few years we normally have been consistently receiving refunds between 1 and 2k. The big turnaround this year of course is because of something I did.

My 401k from my days at GE had just been sitting out there since I left the company. It didn’t have a huge amount of money in it. This past year I decided to cash it out to use to pay off some long term debt and some other things. When I withdrew the money I took an immediate up front 20% tax hit. I foolishly thought this was the extent of my tax burden. When our accountant returned the bad news he told me that there was another 10% tax penalty that I had to pay and the withdrawl got thrown on top of our taxable income, knocking us into a higher tax bracket, further increasing the pain. If I had it to do over again I would still cash it out but I would have made provisions for the tax consequences up front. At my job I have a 401k-like program as well as getting a pension so I felt pretty secure with liquidating the funds. Live and learn.