is there a way i can take the money out of my 401k to pay off my credit cards, i am only 22 and have like 5000 in my 401k and thats exactly what i need, and how whould i go about taking that money and how much do they tax since of course i am no where close to retirement
2007-07-26 09:11:51 · 12 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
Niceperson may be nice but it completely wrong! If you take out money from your 401K you will be heavily taxed. I don't remember the amount but it could be between 25-40%! Check with your HR department. You can take a loan from your 401K that is probably a lower interest rate than your credit card (if any interest at all). Also, you may not be able to borrow 100%. Again, check with whomever manages your 401K. They will be able to give you all the information you need.
2007-07-26 09:20:35 · answer #1 · answered by geistswoman 3 · 0⤊ 0⤋
Alot of 401k account will NOT let you just remove money. some will allow you to take a loan against a certain percentage of the available balance - but the loan must be paid back. You would have to check with your specific 401k co. for rules. & Yes, you will have to pay taxes on it. It was considered non-taxable when it was removed from you check under a tax shelter - but once you take it out, you will have to pay regular wage taxes on it - maybe not until you file... but you will still pay them!
Why would you want to take away from your retirement at such an early age? You should NEVER take money from that kind of account unless there is no other choice. Once you start looking at it as expendale income - chances are you will never value the growth and security that will become of that 5k
2007-07-26 09:16:24 · answer #2 · answered by mbschlosser 3 · 0⤊ 0⤋
You contact the administrator of the 401k or your employer if that's where you have the 401k. Be aware you will pay 10% penalty on the money and if you dont pay it back to the 401k you will receive a Form 1099 and will have to pay income tax on it. You can only borrow money from it if your plan allows loans.
2007-07-26 09:16:32 · answer #3 · answered by hirebookkeeper 6 · 0⤊ 0⤋
The only problem with a loan from your 401K is that if you leave employment you will have to pay the loan in full or it will be considered a distribution to you. It will then be taxed as ordinary income subject to early withdrawal penalties.
Not a good idea. The tax could be 25% to 40% depending what tax bracket and state you're in.
2007-07-26 14:17:44 · answer #4 · answered by Glenn S 1 · 0⤊ 0⤋
Taking money out of a 401K is never a great idea just to pay off bills. Furthermore, 401K plans have strict limitations on how much and how you can withdraw money. If you did, you will be given a timeframe to replace the money or there are hefty penalties and you end up losing a great deal of money.
2007-07-26 09:17:00 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Nope. normally the only way to get it out is thru a hard ship. and credit card debt doesn't qualify, some plans have a loan option where you can borrow against your 401k and repay the moeny to yourself with interest which is a great way to go if you can afford it. Your best option might be to contact your credit card company or a bank and get a personal or secured loan at a decent interest rate to pay off the card
2007-07-26 09:21:17 · answer #6 · answered by hunting4junk 4 · 0⤊ 0⤋
1st of all, you generally can't get to your money until you leave your job.
If you have left and you do cash it out, it would taxed just like your wages and, on top of that, there would be a 10% penalty as well state taxes if your state has an income tax.
It is not uncommon to pay 30%-40% of your 401k to taxes if you cash it out early.
The fact that you are "no where close to retirement" is the best reason to leave it in the 401k so it can grow until you retire.
2007-07-26 09:16:41 · answer #7 · answered by Wayne Z 7 · 0⤊ 0⤋
The best way is to take out a loan against the vested amount of the 401k. This way you will have be subject to the hefty tax penalty.
2007-07-26 09:24:04 · answer #8 · answered by Etta P 4 · 0⤊ 0⤋
There are usually two options: borrowing from your 401(k) - some plans don't allow this and you can usually only borrow half of what you have) and a hardship withdrawal (medical need or letter of eviction).
If you withdraw, you will pay a penalty for early withdrawal and taxes. So, your $5000 will be more like $3,000 when you actually get the money.
2007-07-26 09:18:31 · answer #9 · answered by Shannon M 4 · 0⤊ 0⤋
You can borrow the money from your 401K, but you will have to pay it back. Check with your resource department about the details. This is not a bad idea. As long as you are paying it back you pay no penalties.
2007-07-26 09:17:08 · answer #10 · answered by tooyoung2bagrannybabe 7 · 0⤊ 0⤋