If so what kind of penalties? I'm new to this. Please help.
2007-01-12 13:22:18 · 7 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
First of all make certain that you CAN according to your 401K policy. I am in a plan that I cannot withdraw from unless I quit or got fired. That's the first step. If that's a go and you REALLY want to do it, say goodbye to a 10% penalty plus 20% withholding for the IRS. You may end up paying more than 20% at tax time based on your income plus that amount you withdraw. Unless you really MUST take that money, don't take it. You will want something upon your eventual retirement. Why give up the head start you have???
2007-01-12 13:35:25 · answer #1 · answered by Anonymous · 0⤊ 0⤋
I'm assuming that you've left the company that you had the 401k with. If you're still with them you will have to satisfy hardship requirements to take a withdrawal and you probably will be limited to only the amount you put in; no earnings and no employer contributions.
If you take a distribution you will immediately have 20% withheld from the distribution. That amount is used to offset your tax bill at the end of the year. However, when you file your taxes, you will get hit with a 10% excise tax. So, if you have $10k in the account you will start off only getting 8k of it....then depending on your income level you will owe an additional 1,000.00 (maybe more if you're tax rate is higher than 20%) next year when you file your taxes.
Penalties suck...but what sucks more is how much you would have had at retirement if you leave it alone. To get at 10k now, you will be giving up about $125,000 when you retire in 35 years...you need to ask yourself if what you are buying right now will be worth $135,000 in 35 years. Do NOT take this distribution if you absolutely don't need it!
2007-01-13 14:02:56 · answer #2 · answered by digdowndeepnseattle 6 · 0⤊ 0⤋
Ok, I just did it two years ago. I was penalized 20%. But what was sweet that it was like taking taxes out. The next year when I reported that as income I got ALL my penalties back. I was like everyone else, expecting that I would never see it. So in your 401K you do get it all back, except when you are 55 1/2 you get it back all at once. But I like it my way, cuz even at 56 I would have still had to pay taxes on it, and at a certain older age it is tax free, but since I am not over 60, I don't know, and I don't care.
2007-01-12 21:37:14 · answer #3 · answered by Big C 6 · 0⤊ 1⤋
Probably 10% of what you take out. This assumes that your company's plan allows you to withdraw money from the plan while still employed there - not all plans do. If you quit or get laid off, the 10% would still apply.
You might look into the possibility of taking a loan against your 401K instead of withdrawing the money - then there's no penalty as long as you pay it back within the terms of the loan.
2007-01-12 21:27:19 · answer #4 · answered by Judy 7 · 0⤊ 0⤋
You will be penalized by 10% 0f the withdrawal amount and taxed (at a high rate) on the entire portion. Don't do it if you have any alternatives.
you can withdraw up to $10K without penalty if the money is used to buy your first home or pay tuition costs for a dependent. You still have to pay the taxes.
2007-01-12 21:26:56 · answer #5 · answered by PSD 3 · 0⤊ 0⤋
Yes and I believe the penalty is somewhere between 20% and 30%.
2007-01-12 21:27:21 · answer #6 · answered by Doogie 4 · 0⤊ 0⤋
Actually you can count on 20%.
2007-01-12 21:35:31 · answer #7 · answered by doris_38133 5 · 0⤊ 1⤋