401K question?

Question

I have a 401k with a company who previously laid me off. I also am paying a loan payment on my 401k that has a little under $800 left on the loan. The company is closing their account and I want to take out the rest of my money. if I have $4000 in my 401k and the loan left to pay off. How much do you think I will get back and how much will I have to pay in taxes at the end of the year for it?

Answer 1

I think you'll have to pay 27-30% in taxes and a penalty fee. If you call the investment firm where you are holding your 401K they can provide you with all the details as to how much you'll get and how much taxes you'll have to pay down to the T.

Answer 2

You have $4000 and owe $800, so the balance will be $3200. They will hold the 10% penalty and send the IRS 25% of the remaining amount. You should get somewhere near $2160. At tax time you will pay your ordinary income tax rate on the original $4000. Since it isn't a lot of money and since you have been laid off, you tax bracket might only be 15% or you might be in the next one up which is the 28% bracket. If you are in the 15% you might get a little of the tax they withheld back and if you are in the 28% bracket you will owe a little more.

You will also owe state tax (at ordinary income tax rates) if you live in a state that taxes income.

You must have been recently laid off. Most 401k loans become due immediately (30-90 days) if you are laid off, fired or quit.

Now I will do what all of the other answerers have done and get on my soapbox (where did that expression come from anyway?) and tell you that it's a bad idea to take these kinds of loans and that it's a bad idea to cash out your 401k plan.

This is one of the pitfalls in taking loans from a 401k. In the future, DO NOT TAKE 401k LOANS. In general do not cash out your 401k if you leave a job. Roll it over into the new employers plan or in a rollover IRA.

good luck!

Answer 3

Do not withdraw your money from the 401K or you will to pay a 10% penalty tax, you will also have to pay capital gain on any of your funds' gains (15% to 40% according whether or not these are short term or long term gains). Pay off the loan, then roll over the 401K money into an IRA (you can open one at any brokerage firm). Even if the company is closing their account they have a fiduciary duty to keep it going some how or to offer something. Call the 401K plan first and ask what is the plan going forward. They might offer you to roll the money themselves into an IRA or something similar and still keep the loan open for you to repay. My suggestion is to pay off the loan, then roll over into your own IRA. I believe the biggest mistake that people make when they leave a job is not to roll over their money into their own IRA but instead they leave it in the 401k or withdraw.

Answer 4

Assuming that the $4,000 doesn't include the loan and your real balance is $4,800 then the following will happen: You will receive $4,000 LESS 20% of the full $4,800. or $3,040. The $960 will be submitted to the IRS as withholding. If you're under aget 59 1/2 you will get taxed on the full $4,800 (if your tax rate is under 20% then you'll be ok here, if it's over then you'll owe additional tax.). In addition you'll get hit with an additional 10% excise tax penalty of the full $4,800.00 or $480. So you'll have to put more aside to account for that...leaving you with about $2,560.

But, if you decide to roll it over then you'll get to roll over the entire $4,000 and the taxes will be: taxed on the $800 at your normal tax rate of about 20% = $160. Penalty of 10% of the $800 or $80 for total tax of about $240.

If you're going to do the former (cash out) then I'd wait until January to do it. At least that way you can use your paycheck to save up the withholding (take away an exemption on your w-4 so they withhold a little more from your check each month). If you're going to do the latter (roll over) then go ahead and do it right away. You'll have 6 months to save up taht $240 extra in tax you'll owe for the loan default.

Answer 5

What does the loan have to do with 401K?
Just roll over your 401K into traditional IRA somewhere else and you don't have to pay any taxes.

Answer 6

You will be charged a 10% penalty for a premature withdrawal of 401(k) funds and that withdrawal will be taxed as ordinary income. Probably 30%-40% will be lost to taxes and penalties.

Answer 7

the tax is a killer
10 percetn up front and then like 25 percent to the fed at IRS time.
Did it some years back and got killed.
Sorry for you.


Real sorry