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A complete liquidation of a person's retirement account can trigger a huge income tax liability, significantly diminishing assets available for investment. For example, a person who withdraws $100,000 from a 401(k) plan will have to report $100,000 of taxable income, producing combined federal and state income taxes of roughly $40,000 and leaving only $60,000 to invest. Had the $100,000 stayed in
Christopher R. Hoyt, professor, University of Missouri (Kansas City) School of Law, Kansas City,
A complete liquidation of a person's retirement account can trigger a huge income tax liability, significantly diminishing assets available for investment. For example, a person who withdraws $100,000 from a 401(k) plan will have to report $100,000 of taxable income, producing combined federal and state income taxes of roughly $40,000 and leaving only $60,000 to invest. Had the $100,000 stayed in the plan, the $40,000 would have generated significant investment income, but the taxation of the distribution permanently deprived the individual of that revenue. Over 16 million people have received lump sum distributions and less than half rolled o...
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