we have around $80,000 in our 401k and are thinking of cashing it in , how much will we lose to tax &penalty?

Question

we want to do major house renovations with our money, we are in our early 40's and then we can start up a new 401k.

Answer 1

You take a 10% penalty up front. Then you pay all taxes and I think Social Security tax on it? So you are talking
10% penalty
25% federal
5 - 8% state
15% social Security?
So anywhere from 40% - 55%.

Also if you take it out it is all considered income for that year. So that will push you up to a high tax income bracket.

How long have you lived in your house. Maybe the best bet would be to take a line of credit. We did that when we remodeled and they took our house value after the remodel. So we had the equity to do the project. There is a lot of options.

Answer 2

Penalty would be 10% of the amount withdrawn - $8000 if you take out the whole amount. The amount withdrawn would also be taxed as ordinary income for the year when you withdraw it - without more info, it's not possible to tell how much than would be without knowing your other income and your tax situation, but that's probably another $12-20K or more.

Another issue - not all 401K plans even allow you to cash in unless you leave the company, and those who do might have a time period afterwards when you can't get back into the plan.

An alternative is taking a loan against your 401k - then you wouldn't be paying taxes and penalties as long as you pay it back.

Answer 3

Its about 45 percent after penalty and state and federal gets their share. I would just get a 401K loan., no penalty will be involved then.