What is a taxable brokerage account

What is the tax that is levied on the 401,000 share portion paid out?

Dilip Sarwate

Withdrawals from a traditional 401 (k) plan will always be treated as cash receipts and the taxable portion will be taxed at normal income tax rates, even if the money was held in stocks under the 401 (k) plan and the amount withdrawn is equal to capital gains made by selling the stock under the 401 (k) plan. If your plan allows you to make the distribution as equity shares (transferred to your taxable brokerage account), so will tax treated as if you had made a cash distribution equal to the market price of the shares on the day of the distribution and immediately bought the same number of shares in your brokerage account. And yes, if the 401 (k) plan assets in your ex-employer's plan consist solely of input tax contributions and the income earned on them, the entire distribution will be ordinary taxable income, regardless of whether you bought the shares under the 401 (k) -Plan or not have sold the plan took a distribution of the inventory from the plan and sold it immediately (or after a few days). The capital gains or losses (if any) from such a sale are of course outside of the 401 (k) plan and are subject to tax accordingly.

Finally, the 10% early retirement penalty from a conventional 401 (k) applies even if you are not 59.5 years of age or older (or perhaps 55 years since you are off duty) and is applied to the entire distribution calculated.