To extract 401k money from an account from an old employer without paying so much of a penalty. (rolling over is not an option)
2007-08-09 03:17:18 · 4 answers · asked by Coach 6 in Business & Finance ➔ Personal Finance
New employer has a IRA and the existing 401k cannot be rolled into it. We are in need of the money now (and I hate drawing this out) but it is really our only option to do what we need to do. Just trying to see if there was a way without paying so much in penalties, some finance guru wizard ****.
2007-08-09 04:10:47 · update #1
I agree, Wayne, first 2 options are not on the table. Besides, If I were to die, wouldnt need the 401K. If I were to become disabled, have insurance for that.
2007-08-09 04:12:19 · update #2
dont listen to all that gobbly ****...just leave it in there until your 59.5 if you cant roll it over. Roth IRA's are good, but if your going to be in a low tax bracket come retirement, why not save money on taxes now and have more money in your pocket. take the penalty and put it int a traditional IRA
2007-08-09 03:37:02 · answer #1 · answered by MCK_23_L 3 · 0⤊ 1⤋
Can't really be done as the penalty is assessed by the IRS. When you put the money into the 401K, it was done before taxes, so you paid no taxes on that income. If you pull it out now, then you are essentially just paying the taxes on it that you didn't pay when you earned it. Of course you have tax on not only what you put in, but what it has earned, too. The penalty is there just as an incentive to get people to think twice before pulling that money out.
If you do not own a home, you can borrow against it for your downpayment. You have to pay it back with interest (basically you are loaning yourself money, but at least you get the interest paid on it, not the bank). The money you pull out is not taxable and is not penalized IF you pay it back. If you do not pay it back, then you are taxed and penalized on the difference. The only problem with this is that you are pretty much tied to the company since if you leave the company, that loan is due and payable in full immediately or else you have to pay the penalty/tax on it.
You say you can't roll it....is that just because your new employer doesn't have a 401K plan? If that is the case, roll it to a Roth IRA. You will have to pay the tax, but all future earnings will be tax free and there is no penalty for moving it to a Roth. Roth's are a better way to go than 401K's in most instances anyway. When doing a Roth rollover, you used to be able to spread your taxes out over 4 years, but I don't think that is allowed anymore.
2007-08-09 10:25:41 · answer #2 · answered by sortaclarksville 5 · 0⤊ 0⤋
Die
Become totally disabled
Neither of above two items are recommended.
If you cash out a 401k, you are going to be taxed and penalized. There are very few exemptions to the penalty when you cash out a 401k and you will ALWAYS be taxed on the withdrawl.
2007-08-09 11:03:56 · answer #3 · answered by Wayne Z 7 · 1⤊ 0⤋
It depends on what you need it for. 401(k) plans allow for hardship withdrawals depending on what your situation is (i.e. medical bills). If you are 55, you can withdraw your money with only paying ordinary income tax (they will assess a mandatory 20% withholding upon withdrawal).
Other than that, you will be paying an extra 10% penalty for early distribution.
Ron, ChFC
2007-08-09 11:53:45 · answer #4 · answered by Ron 3 · 0⤊ 0⤋