Can cashing out a 401k plan at the end of employment be directed toward education without taking a hit from the IRS?
2007-05-02 04:22:18 · 5 answers · asked by srmc_007 2 in Business & Finance ➔ Taxes ➔ United States
No. All distributions are fully taxable as ordinary income. If you're under 59 1/2 at the time of the distro, there is a 10% penalty tax on top of that unless the money is used to pay medical expenses that exceed 7.5% of your AGI or you are totally and permanently disabled.
2007-05-02 04:27:31 · answer #1 · answered by Bostonian In MO 7 · 2⤊ 0⤋
I would talk with a financial advisor. I know with an IRA, that money can be used to pay for education without penalty - and from what I understood the 401k is supposed to be the same.
In doing a websearch apparently you are allowed (if your employer allows it) to take out a loan for education. But since you're leaving your current place of employment, do what I did....roll your 401k over into an IRA and from there take the money for education.
2007-05-02 04:30:17 · answer #2 · answered by Sunidaze 7 · 0⤊ 3⤋
At first blush I would say yes; this means that there would be no early withdrawal penalty. Howver you would have to include the taxable portion in with ordinary income and pay taxes on it. Get a form 5329 and check the exception codes to make sure this is correct.
2007-05-02 05:22:14 · answer #3 · answered by acmeraven 7 · 0⤊ 3⤋
No, you'd have to pay the taxes.
2007-05-02 05:36:43 · answer #4 · answered by Judy 7 · 1⤊ 0⤋
No. Definately not.
2007-05-02 04:29:34 · answer #5 · answered by Anonymous · 0⤊ 0⤋