I'm thinking of cashing in part of my 401K stock pile to pay off debts. I am young enough that I have plenty of time to rebuild the funds before it would be retirement time. My credit is in the toliet and I can't get ahead!! HELP!
2006-12-30 14:47:12 · 6 answers · asked by Laura J 1 in Business & Finance ➔ Taxes ➔ United States
plan on losing about 60% of the money to taxes and early withdrawal penalties.
2006-12-30 14:50:50 · answer #1 · answered by fat_albert_999 5 · 1⤊ 1⤋
Whatever you take out of your 401k is added to your income and you pay income taxes on it. In addition, you will pay a 10% penalty.
It will not be anywhere near 60%, it may be 25% tax and 10% penalty if you are already at the top of the 25% tax bracket. You may want someone to do a mock tax return for you to see how much extra tax you will have to pay, so you can decide what is best for you.
2006-12-30 23:43:36 · answer #2 · answered by ninasgramma 7 · 2⤊ 0⤋
Usually the only good reason for borrowing from a 401(k) is to buy a first home. Using it to pay off debts will help with your balances, but not your credit. Credit takes time to build, and as anyone with good credit will tell you it didn't happen overnight.
I would try a different approach. You can usually handle most of your debts just by living within your means, and using the Fair Credit Reporting Act to your advantage. I would read up there, write letters, and only borrow from my 401(k) as a last resort.
It seems like a "quick fix", but don't believe it. Ask those who have borrowed from their 401(k) and they will tell you.
2006-12-31 08:10:04 · answer #3 · answered by Kevin K 3 · 1⤊ 0⤋
You can't take a distribution from your 401(k) without quitting your job. You can however, take a loan from your 401(k). You can borrow up to 50% of your 401(k) balance, and then you repay it over a period of time that you elect, and the repayment is done through payroll deductions from your after tax pay. I believe you can choose to repay it over a period of up to 5 years. If you are taking the loan out to purchase a home that will be your principal residence, you can then elect to repay it over 30 years. You will be charged interest, but the interest is fairly low in comparison to credit cards, and you are paying the interest to yourself.
If you are borrowing the money from your 401(k), you won't be paying taxes on the loan.
2006-12-30 23:31:10 · answer #4 · answered by jseah114 6 · 1⤊ 0⤋
contact your hr department at work and get them to give you the number to the 401k and call them .. they have hard ship withdrawals which you may qualify for they will be able to tell you what your apoitions are.. now bear in mine that some 401k companys makes you pay back loans if you quit your job if you have loan out.. you need to ask
2006-12-31 16:49:52 · answer #5 · answered by ? 5 · 0⤊ 0⤋
you will pay taxes and a 10% federal penalty.
2006-12-31 11:02:55 · answer #6 · answered by shrinkrap4u2 2 · 0⤊ 0⤋