Information & Advice on 401(k) Cash-Out Penalties

I cashed out my 401(k) and they took 60% and told me the rest had to go back to the employer. This doesn't sound right to me.

I have a 401(k) account with a previous employer. I never contributed because I did not know it existed until I left that job. I cashed it out to pay off debts and they took 60% and told me the rest had to go back to the employer. This doesn't sound right to me. Help!

Read full question
Bill's Answer
4.5
/5.0
(10 Votes)
Bills.com Team
Pro

By

Highlights


  • Congress permits two types of hardship distributions.
  • File a Form 5329 to report the tax on early distributions.
  • Your plan administrator will send you a Form 1099-R.

You state in your question that you never made contributions to your 401(k) account. Employers only match based on contributions of the employees. Therefore, if you did not contribute then it is likely that neither did your employer. Either your employer did not create an 401(k) for you and instead enrolled you in a private pension plan, or if you had a 401(k) account and was not aware of it, the administrator miscalculated the penalty and taxes for your distribution.

We will discuss 401(k) distributions in a moment. Generally, however, unless you qualify for hardship distributions from a 401k plan, it is very expensive to liquidate 401k funds, and therefore, if you are looking to solve a debt problem you may want to look elsewhere.

If you have outstanding debts that you are struggling with, get a no-cost, no obligation analysis of your debt options from a pre-screened specialist, click to see if you qualify: Free Debt Relief Quote.

Now onto 401(k) distributions, penalties and solutions for you.

401(k) Distributions

In general, if you withdraw money from a traditional individual retirement account such as a 401(k) or other qualified retirement plan before you turn age 59½, you are subject to penalty of 10%. The taxable amount is also included in your taxable income. This 10% tax is in addition to regular income taxes. You can avoid this additional tax penalty if you meet certain criteria, but you cannot avoid including your retirement withdrawal from your taxable income.

What this means is that if you withdraw $10,000, you may only end up with $6,000 (or less) in your pocket. Some withdrawals can be made without penalty, but these usually require a true financial hardship.

See the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules for more information on distributions.

Concerned about what is appearing on your credit report now? Check your credit report today and receive a free credit score instantly.

Cashing-out a 401(k) Tax-Free

Let us say you leave an employer, and your former employer’s 401(k) administrator wants to close your account and give you a distribution. If you accept the distribution and deposit the check into your usual checking or savings account, you are liable for significant taxes and penalties.

To avoid the taxes and penalties, roll the funds from the 401(k) into an IRA, or your new employer’s 401(k). Your new employer’s plan administrator will be able to assist you if you want to go this route. If you want to set up an IRA account, your financial institution will be more than happy to set up an IRA for you. See the IRS document "Publication 590 (2008), Individual Retirement Arrangements (IRAs)" for more information on IRAs, and for more information on rollovers, see the IRS document "Topic 413 - Rollovers from Retirement Plans."

Regarding the cashing-out penalties, rules vary from company to company, it becomes difficult to calculate the penalties. Contact the plan administrator at your previous employer to find out the actual modalities of your cash out (early withdrawal), and an accounting of the taxes and the penalties they charged you.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

281 Comments

Recent Best
1500 characters remaining
  • 35x35
    Jun, 2011
    Michelle
    My husband has a 401K thru his work that currently has $18800 in it. We really don't want to have anything tied to his company as they seem to constantly lose our money. We also have a car note that is $14000 and roughly $16000 in outstanding debt. We are wondering if it would be a good idea to cash out my husbands 401K, pay off the car, sell it (hopefully for $12500 - it's kbb value), take the $12500 put that plus an additional $3500 saved up to pay off the additional $16000 debt we have. Then start from scratch a new Roth IRA for him - putting in $200 he normally would have put in the 401K, plus an additional $600 a month (extra money we'll have after car and additional debt is paid off), making it $800 a month towards his new IRA to get him caught back up - with still having about $760 extra a month that we weren't used to due to paying down the debt. Otherwise, according to our car loan - it will still be 4 years before it's paid off ($450/month payment), and according to the debt management company we're with it'll be 2 years before that's paid off ($910 a month....HELP!
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      In general, I dislike the idea of taking a distribution from an 401(k) to retire debt. Consider a 401(k) loan, which may accomplish all you want without penalty.

      I will assume the employee/owner of the 401(k) is age 59½ or less. If you account for and factor in the 10% penalty tax, and the increased income tax you will pay for the distribution, your idea is fine if you are disciplined and put the $800 per month you mentioned in a traditional or Roth IRA.

      Many people leave the default investment choice for their 401(k)s. Check to see if other investment options are available.
      1 Votes

    • 35x35
      Jun, 2011
      Michelle
      Hi Bill, Yes I'm sorry, my husband and I are 25 and 27 years old respectively. Which is why we thought this might be a rational decision since we are still young enough to "reimburse" ourselves and rebuild a new retirement for my husband from scratch. We currently do not have any children - so no expense there right now. We do however, plan to try soon. Also, we have a $1076.67 mortgage and roughly $900 in utilities (this includes cable/internet/netflicks and the usual). Our monthly take home income is roughly $4900 (we make roughly $40K each). Hope this additional info helps to give us more of an idea if this is a good way to go or not. We figure getting debt free would add to our credit scores (which are currently in the mid good range) and also would alleviate stress from our lives (good for our health) and overall make us be able to live more comfortably. Let me know if there's any info you need that I haven't provided. Could you give me an estimate on what the penalty and the taxes for the cash out of his 401k would be (it says surrender val is 18864.14 and there's a notation of free withdrawal available of $3372.61 - don't know what that means?). Thanks so much!
      0 Votes

    • 35x35
      Jun, 2011
      Bill
      Consult with the 401(k) administrator to learn if your spouse is fully vested. "Free withdrawal" may be the amount available for a loan, but that is a guess.

      Regarding the penalties and taxes, I am loath to make such an estimation for readers because I never know enough about the reader's tax situation, such as if they use the standard or itemized deduction, and so on. Consult with a tax preparer, or complete a dummy tax return to estimate your 2011 tax liability.
      1 Votes

    • 35x35
      Jun, 2011
      Michelle
      Okay thank you very much again for the information Bill, I do appreciate your time and input.
      0 Votes

    • 35x35
      Jul, 2011
      Eric
      On March 3, 2011 I was fired from Wal*Mart after 8 years of service. They consider you to be fully vested after 7 years. My 401(K) was around $14,000. They gave me the 10% penalty because I'm only 27 and asked if I wanted the taxes taken out as well (Merrill Lynch) and i said yes. I'm assuming this was the other 20% that everyone's referring to. They cut me a check for around ~$9,800. My mother works for a credit union so I've been getting "advice" all around me *eye roll.* Should I put to the side some 20% of that money to pay for my taxes THIS COMING YEAR? I do *crosses his fingers* plan on getting a job very very soon. And I understand I'd be taxed on Jan-Feb. from Wal*Mart PLUS wherever else I'd be working. I guess another question is will this ALSO include my $9,800 that I received after they taxed me? So in theory i get taxed twice? I hope this is not as round about as it sounds and I can get a good answer. I'm planning for vacation.
      3 Votes

    • 35x35
      Jul, 2011
      Bill
      You are not taxed twice. You paid a 10% penalty of $1,400. You had 20%, $2,800, withheld, leaving you with 70% of the $14,000, the $9,800. When you file your taxes, you list the $2,800 that was withheld as already paid. If you overpaid, you will get a refund, if you underpaid, then you will owe more. It all depends on your tax bracket and how much you have withheld from other sources of income.
      1 Votes

    • 35x35
      Jul, 2011
      Toni
      I am a 46 yr old, between jobs, and have accumulated significant credit card debt in order to cover expenses over the last few years. Also I had taken a $25,000 loan against my 401k a year or two ago and the balance is around $15k. I have $115,000 remaining in my 401k with my previous employer. What I'd really like to do is take out enough money to cover my $40,000 credit card debt and roll over the remaining balance in my 401k to my new employer's 401k (I'll be starting with them in two weeks). I know it's not the best idea to take money from my 401k because of the penalty and tax implications, but my credit card rates are high and I can't seem to make headway due to paying the finance charges. It would be such a relief to be without these high credit card balances ... I'd appreciate your advice on the best way to take care of this debt and roll the bulk of my 401k money into a new account. Any idea re tax+penalty percentage? Also, any advice on how to pay the 401k loan balance I already have?
      0 Votes

    • 35x35
      Jul, 2011
      Bill
      Your question is variation on the old relative rates of return problems students see in business school. Sit down with a calculator and run the numbers:
      • Credit cards: How much will it cost for you to continue on your present path?
      • 401(k): How much will it cost for you take a distribution? Remember, you have the 10% penalty tax plus the impact on your income.
      • 401(k) loan: Ask your program administrator what eligibility you may have for a loan against your 401(k), and the cost.

      Your answer will be in black and white after you run the numbers.

      0 Votes

    • 35x35
      Aug, 2011
      Melinda
      I am 27 years old and recently divorced. I am getting half of his 401K which at the moment is about $31,000. That puts me at approximately $15,500 of the money. I have taken on a lot of credit card debt, student loans, and medical loans until I thought I could get on my feet. However, I am not getting that way and just want to make sure I can continue to raise the 2 children and such on my own. Do I cash in on this 401K and start a new one of my own very soon? Or do I use this as a starter base? If I cash in what am I looking at for penalties and such if I claim a hardship?
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      How your divorce settlement is structured and the laws of your state are keys to whom is obligated to penalties, if they are necessary. Check with your lawyer and the plan administrator.

      Rolling the $15,500 you mentioned into an IRA is your most prudent action because it has no tax consequences. After the $15,500 is rolled into an IRA, you can take distributions from that account, but you will pay a 10% penalty tax, plus the distribution is considered income, and must be declared as such on your income tax return.
      If you do NOT roll over the funds into a retirement account, you will have to pay taxes on what you take out, based on your tax bracket for the year. If your income is low and you are in a low bracket, you will pay less taxes than if you take out money in a year where you are in a higher bracket. Only you can decide if it is more important to pay the taxes and have cash in hand to stabilize your family's finances or if you should not pay any taxes and roll over the entire amount.
      0 Votes

  • 35x35
    May, 2011
    Dana
    I have a 401K from a job I quit in early 2006. I didn't touch it after I left and as of right now there is approx $8000 in it. I have another 401K from my last job with about $18000 in it that I plan to roll into my current employers 401K in January of 2012 (when I'm eligible). I am 30 years old and need approx $5000 for a down payment on a house in the fall of this year. I understand penalties and accept them, but I need to know how to proceed so I can get the money and pay the taxes at the same time. How do I start this process? Thank you!!
    0 Votes

    • 35x35
      May, 2011
      Bill
      Call your 401(k) administrator, and consider a loan instead of a distribution.
      3 Votes

  • 35x35
    May, 2011
    Pips
    I may lose my job. I was wondering if state unemployment runs out, my savings runs out, and I still haven't found a job I will need to look at my Roth 401k (Taxes already paid on it) to pay my mortgage. This looks like I would at this point be able to fall under the 401k hardship clause since this would push me into foreclosure. I would be able to pull money out without any penalty, correct?
    0 Votes

  • 35x35
    May, 2011
    gerrod
    hi i am 38 years old and i am thinking about taking a loan against my 401k to buy a investment property.i will own the property outright. the ROI is about 6 years. is it smart to do this or should i just leave the money in my 401k. the property is a positive cash flow ( every month that its rented of course ) my job is very secure thank you !!!
    0 Votes

    • 35x35
      May, 2011
      Bill
      For starters, you need to factor in the 10% penalty for early withdrawal and the state and federal taxes that will be due. Depending on your tax bracket, you should figure on losing about 30-40% of what you withdraw, which is quite the hit. Once you have that figure, you need to consider how good a deal you are getting on the property. Is it worthwhile, even after the taxes and penalties? Your question also alluded to the fact that it will produce income when it is rented. Being a landlord has its risks. How long could you cover the mortgage (if any) and the upkeep on the rental, if the renters leave or damage the property?

      In general, I am against taking money out of retirement accounts. However, if the deal is too good to pass up, it can make sense. It is not clear to me what the actual figures are, though you did state that you expect a return on your investment in six years. The greater the outlay, the greater the risk. Six years to recoup is compelling and worth serious consideration. Just make sure to consider all the pros and cons and be certain to budget enough to cover all the taxes that will be due in April of the year after you take the withdrawal.
      0 Votes

    • 35x35
      May, 2011
      gerrod
      Hello again !! In response to your post there is no penalty for taking a loan,no taxes and i have 15 years to pay back the loan . I will pay back the loan much faster because the money i make off the property will go directly to the loan until its paid off. the total monthly cost is about 250 a month hoa, taxes and insurance.i know rental property is risky and is why i am asking the question should i leave the money in my 401k but to me this property could be a extra cash flow per month until the day i sell the property because i will own it and not have a mortgage payment due each month. thank you for your time
      3 Votes

  • 35x35
    May, 2011
    Andrew
    I am 28 years old, married, with one child, homeowner, that has $5,000 in a previous 401k. I was laid off due to the economy at a very large company. My wife makes roughly $80,000/year. We are looking into selling our current home and move into a newer home by March of 2012. We wanted to take my $5000 of 401K money and apply it to the purchasing of the new home. How much will I be penalized for taking it out and should I wait until closer to the purchase time or take it out asap? Thanks is advance for your input
    0 Votes

    • 35x35
      May, 2011
      Bill
      You will pay a 10% penalty tax for taking a distribution. Consult with your 401(k) administrator to learn what steps you must take to receive the distribution, and the timing for receiving the check.
      0 Votes

  • 35x35
    Apr, 2011
    jimbow
    ok i have $13,000 on my 401k i want to cash out i know i will get a penalty 20% plus 10% end of the year. i make 32k a year with tax withholding about $3,900 do you have any idea how much do i have to pay for my end of the year tax or do i still get some money in return?? last year i got some money back about $1.200 somthing. if i have to pay then how much do think you stimated do i have to pay? thanks
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      I cannot answer "How much do I owe or withhold?" tax questions because I never have enough information about the reader's financial situation. Consult with a tax preparer, who can review your tax and financial documents in person and give you a precise answer.
      0 Votes

  • 35x35
    Apr, 2011
    Lily
    I am 33 yrs old and lost my job over 5 months ago. I've been really depressed and have no money left as I've been living off my savings. I have about 4700.00 in a 401k and want to cash this out. I contemplated this long enough. When I spoke with the Plan adm, he said I could roll it over to an IRA but I need this money to eat and get by for the next month, yes it's that bad!...until I find a new job and who knows when that will happen?! I have 2k in expenses and that includes rent, bills, and not to mention food each month. After 20% + 10% in taxes and penalties, do you think it's worth it? It's a small amount and I still have a long ways till retirement. I am at my ends and have no other means. I would appreciate your insight and opinion and want to make the best decision but I need to eat! Thank you very much.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Let us say that for the sake of argument you take a distribution on your 401(k), pay your bills, buy groceries, and in a month or two you still do not have a job. What then? I am not saying you should or should not take a distribution on your 401(k), but what happens when that is gone? Pretend that scenario is playing out today, and then take action. Is it moving in with a sympathetic friend or relative? Applying for welfare? Selling your possessions?
      0 Votes

  • 35x35
    Apr, 2011
    jay
    I'm planning on purchasing a new home and renting out my current residence. The new home will be my new primary residence. But to do so, I plan on cashing out my 401k for a down payment. But I'm still employed at the company that holds it. I'm in no financial distress but need the money for a down payment on the new house. The current real estate market is very attractive and I know over the next 3 to 5 years I'm make ten fold back in equity in the area im looking in. I have roughly 50k in there. What's the best way for me to go about this. I don't want to take a loan against it because I don't want to pay it back. Nonetheless, what's best for me to do???
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      See the IRS publication 401(k) Resource Guide - Plan Participants - General Distribution Rules to learn the general rules for a distribution. Also consult with your employer's 401(k) administrator to learn the specific rules for your plan.
      0 Votes

    • 35x35
      Apr, 2011
      Evan
      Hello, I currently have a 401K plan worth approx 21K. I am 28 and am going back to school and want to get rid of my older student loans/credit card debt etc. upwards of 12K. I feel that buy cashing out my plan early and wiping my debt clean I will enable myself a better life now; even though I know this will be worth a lot more down the road. Would it be smart to cash out early in order to stop incurring years of high interest?
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      It is important to weigh all the pluses and minuses, before you pull money out of your retirement accounts. You will have to pay a 10% penalty ($2,800), plus pay taxes on the withdrawal. Figure on losing 40% of what you take out. If you were to pull out $12,000 to clear your debt, it will cost you around $4,800. Do you think that you would pay as much in interest as you stand to lose in taxes and penalties? Are your funds in your account tied to stocks that are at a low value now? If so, cashing out, as you mentioned, reduces your long term value significantly. I suggest you do the math. It likely depends on how high your interest rates. Another factor to consider is whether you will be able to maintain your monthly payment obligations when you go back to school. If not, then there is a greater value in clearing out the debt now. In general, however, I do not think it is a good idea to draw on retirement accounts unless no other good option exists.
      2 Votes

    • 35x35
      Apr, 2011
      Evan
      I appreciate the timely response. The student loan I have is fairly low interest, however it is a long term graduated payment plan, so I will be paying it off for easily another 5-10 years. My credit cards vary from 20-25% APR with total debt being around 5K. I should also mention that my 401K is paid into fully by my employer; I never matched any of my own money into it. So I feel that even though I will incrue high taxes by pulling out early, it isn't money I originally invested so I'm not "losing" money the way I'm losing money with my debt. I believe that I will be reducing my bills annually by $3600-4000 so it seems that within a year or two I will have offset those taxes/penalties.
      0 Votes

  • 35x35
    Mar, 2011
    Frank
    when you retire and cash out your 401k is the income tax rate the same as on your earned income before you retired?
    0 Votes

    • 35x35
      Mar, 2011
      Bill
      No, your pre-retirement tax rate is irrelevant to the calculation of your present tax rate. See the IRS Publication 575: Pension and Annuity Income to learn more about calculating the tax on your 401(k) distribution.
      0 Votes

  • 35x35
    Mar, 2011
    Lily
    I'm 29 years old, I was laid off and now I need my 401k for bills and living expenses. I know that if my 401k is paid directly to me they will deduct 20% plus a 10% early withdrawal penalty. My question is, if I roll it into an IRA and withdraw from there they will deduct 10% for federal tax and I would still pay the 10% early withdrawal penalty, is this a better option or will I some how still have to make up for the extra 10% I would have paid had I cashed out instead of doing a direct rollover?
    0 Votes

    • 35x35
      Mar, 2011
      Bill
      Your tax obligation will be based on the dollar amount you have disbursed from your retirement account. The amount that is withheld by the retirement account plan administrator does not equate to what you owe, but is withheld to make it so that you will not have a huge shortfall when your taxes are due. If you only have 10% withheld, you may end up owing more when the taxes are due. I recommend that you speak with a tax professional to understand the implications of your potential choices, so you can make the best decision for yourself. Also, don't neglect to budget for state taxes, if you live in a state that has a state income tax.
      0 Votes

  • 35x35
    Feb, 2011
    DS
    Hello, My kids and I are in a mentally abusive situation with my husband. I want to file for divorce but the only way I can afford to do so is withdrawing money from my 401k. I have already decided to do this, I am just wondering if my husband would be owed that money that I withdraw. He has no access to my account and it is under my name only.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      First, consider a 401(k) loan. Ask your 401(k) administrator about the terms. Second, whether your spouse would be entitled to any of your 401(k) upon divorce is a question answered on a case by case basis. Consult with a divorce attorney to learn your state's division of property rules, and how they apply in your particular circumstances.
      0 Votes

  • 35x35
    Jan, 2011
    Adam
    My wife left a previous employer and cashed out a $16k 401(k) plan without rolling it over, and used the money for bills. I knew we would have to pay the 10% early withdrawal penalty, but our tax bill seems extraordinarily high. We are going to owe almost $3k whereas we would normally see a refund of $4-5k. Is a difference of this amount truly possible or is the 20% tax that was withheld at the withdrawal somehow applied to our tax bill?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Any money that was withheld by your wife's 401(k) plan administrator was sent to either the federal government or your state government. It is definitely applied to your taxes. The amounts that were withheld are listed on the 1099 you should receive. Run the numbers again and I think you will find that you owe less than you first calculated. However, the penalties and taxes for early withdrawal of 401(k) monies are heavy. It is normal that a person ends up with only about 60% of the amount withdrawn, paying the rest in taxes and penalties.
      0 Votes

  • 35x35
    Jan, 2011
    Sylvia
    I quit my job at the end of 2010 and cashed out my 401 k oh about 4000. The amount will not put me in higher tax bracket because I was already in a low bracket. Will ingot the taxes that were withheld back or are they gone forever?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      The money that was withheld by your 401(k) plan administrator were sent to the government and are applied to your tax bill. If you had enough withheld to cover what you owe, then you will owe nothing additional. If you did not have enough withheld, then you will owe more. If you had so much withheld that you overpaid on your taxes, then you will get a refund. Don't forget to account for the 10% early withdrawal penalty, if you are subject to it.
      0 Votes

  • 35x35
    Jan, 2011
    Mitch
    Thank you all for your advice and wisdom. My situation: 40 with 2 children and headed for divorce. I have $35K in a 401K from a previous employer and now contribute to a government retiremnet plan. To afford the cost of two homes for my children I need to eliminate debt in a hurry. I can't afford to trade debt by taking a loan on the 401K. I NEED to provide good homes for my kids and feel the only way is to cash out the 401K. I understand this is a small glimpse of the big picture but do you see another alternative?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      It is difficult to offer an observation without knowing more about your debt (how much and whether it is secured or unsecured), your income, and how much you are expecting to spend on rent or mortgage payments. If you have not hired one already, consult with a family lawyer who can help you determine the amount of spousal and support you must provide.
      0 Votes

  • 35x35
    Jan, 2011
    geremy
    My question is this i have $15,023.61 in my 401k currently. I am going to be taking a job with another company and am thinking id like to cash out to pay off some bills etc. just curious what I might gauge on getting back if i cash out. Would just like to know if its work it.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Each person needs to answer this question according to their unique circumstances. You will pay a 10% penalty tax if you receive a distribution, which in this case is $1,500. You will also need to add the distribution to your income, which may bump you into a higher tax bracket. Complete a dummy 1040 for 2011 where you include the distribution and another 1040 where you rollover your 401(k) into an IRA. For some people, the difference in estimated taxes are huge, and others the difference is minor.

      My default answer is to leave 401(k)s alone, and to avoid taking a distribution for anything other than circumstances relating to financial distress.
      0 Votes

  • 35x35
    Jan, 2011
    Lyn
    I had a loan out on my 401K, $2,333 still to pay when i was laid off in 2009. I am still unemployed and I received the 1099-R form just now. My question is, I thought i read you could offset the income/interest/penalties with medical expenses (which we have high dental bills, cobra premiums, etc), is that true? Are there specific rules for that?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      I am not aware of any specific rules that apply to the situation you described. However, tax planning in general can be thought of as a game where the taxpayer earns taxable income in one place that are offset by deductions in another. You mentioned medical expenses. If your medical and dental expenses exceed 7.5% of your adjusted gross income (Form 1040, line 38), then these can be deducted on Schedule A (Form 1040). You mentioned you did not repay $2,333 in a 401(k) loan. The $2,333 will be included in your gross income. Will your medical deduction exceed the amount in taxes you owe on the $2,333 additional income? Complete your Schedule A and 1040 to learn the answer.
      0 Votes

  • 35x35
    Jan, 2011
    sabrina
    Question - For an employer matched 401k, do you have to pay money back to the employer if you cash out early?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      The money that your employer contributes to your retirement account becomes your money once you are 'vested' in your account. Vesting occurs after you have worked at the company for a certain number of years. How long it takes to become vested depends on the rules of your retirement plan. Check with your retirement plan administrator to find out. Once you are vested, the benefits of your plan can't be revoked. Remember that there are serious tax implications for taking money out of a retirement account. Speak with your plan's administrator and also with a tax professional, to make sure you understand what you will owe the IRS and your state in taxes for the money you withdraw.
      0 Votes

    • 35x35
      Jan, 2011
      Tammy
      I cashed out my 401k last year and although I had 11,227 in the account, I ended up receiving only 7,775.00. Does this mean that I have already been taxed by the IRS and do not have to pay them again on this money. I lost my job and had to use this money.
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      The $3,452 that you did not receive was withheld by your 401(k) plan administrator to be used towards your tax obligations for the withdrawal and for the 10% early withdrawal penalty, if you were subject to the penalties. You can't assume that you paid enough or did not pay enough. The proof will be in your return. Make sure to include the money you withdrew on your return. You should receive a 1099 from the plan administrator which specifies how the withholding was distributed. Once you do the return, you will see if you owe anything else or not. If you have a small shortfall, don't panic. First of all, the payment on the taxes are not due until April, 15th 2011. Secondly, if you can't afford to pay it all by April, make sure to file the return on time and then contact the IRS and ask for a long-term payment plan.
      0 Votes

  • 35x35
    Jan, 2011
    Britt
    I'm 24 and have 14,000 in my 401k but only 2,000 in my savings due to living off of it for the last 2 years. I have no student loan debt. I just graduated from nursing school and have a good job lined up. My dilemma is that I really want to treat myself to a trip to australia before I start working, but don't have enough in my accounts. I would like to cash out some or all of my 401k and take a trip before I start working in March. My question is how much would the penalty be to take out 7,000 or the total 14,000? I know that you should never take the money out, but I can't help but think that I have such a long time before I retire. Help!
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Your question splits me in two. In general, yes, I agree with you that it is usually a bad idea to take a distribution from a 401(k). that $14,000 in your 401(k) today at your age of 24 will be worth about $40,000 when you reach retirement age, assuming a 4% rate of return. Would you rather have an Australia trip now, or more money when you retire?

      As you suggest, you have 30 years to pay for your youthful dalliance. Looking back on my own life, I regret not traveling more when I was younger, so that side of me encourages you to not only visit Australia but make a side trip to New Zealand and return via Tokyo.

      You will pay a 10% penalty tax for the distribution, plus your income tax on the distribution on your tax return. You can take all or part of your distribution.
      0 Votes

  • 35x35
    Dec, 2010
    laura
    Hi Bill We just foreclosed and declared bankruptcy 7 months ago and are interested in buying a much more affordable home with cash next year. However, we plan to cash out our 401s to do this. Technically the money will still be invested in land/property. Is there anyway to delay or get a payment plan to pay the remaining tax penalties? If so we would have more money to purchase a home...
    0 Votes

    • 35x35
      Dec, 2010
      Talk to your bankruptcy attorney regarding your idea. I do not know the circumstances surrounding your Chapter 7 filing or the debts included in your filing, and it would be folly for me to weigh in with a thought or observation without knowing more.
      0 Votes

  • 35x35
    Oct, 2010
    rolando
    'm working more than 10 years in America, legally my question is I have had many jobs before how do i know i have 401k plan ? and all contributed to the 401k was transferred from each jobs i was ?...... and if my current employer can know that for me? thank you
    0 Votes

    • 35x35
      Oct, 2010
      Bill
      Search your employment documents to find how to contact the 401(k) administrator at your previous employers. The 401(k) administrators will tell you the balance of your 401(k) accounts with each of your former employers. I recommend you transfer your old 401(k) accounts into a new IRA. This is called "rolling" your 401(k) balances into an IRA. I doubt the 401(k) administrator at your present employer can help you with this task.
      0 Votes

  • 35x35
    Oct, 2010
    Bill
    Making a decision to close a retirement account while you are in distress is not wise. I avoid recommending that people close or liquidate their retirement accounts. Does your retirement account allow loans? If you do not cash-out the account do you need to roll-over the account upon termination of employment? Regarding closing the credit card accounts, do not close them, especially if one is your oldest account. Instead of closing them, cut up the cards and leave the accounts open.
    0 Votes

  • 35x35
    Oct, 2010
    Kelly
    I worked for my local county government for 10 years and was told less than a week ago my position is being eliminated. I'm a single mom with a car payment, credit card payments and other standard monthly expenses. I have a job opportunity for substantially less than I am making right now, but the opportunity for advancement is the motivating factor in accepting the position. I do not want to file bankruptcy, but I'm thinking about cashing out my IMRF retirement fund to square away that lingering debt. I feel that at 35 I am still young enough to recover what I'm cashing in since the economy sucks right now. Is this a good idea? I've learned my lesson with the credit card nonsense and plan to close 2 of the three acounts as soon as they are zero balance. I have no family to ask to borrow cash from, I don't think the bank will give me a loan and I am freaking out because I fought so hard to rebuild my credit but caught in a bad situation and now I don't know what to do. HELP?!?!?!
    0 Votes

  • 35x35
    Sep, 2010
    Bill
    How you time a withdrawal from a retirement account can make a huge difference in taxes owed and penalties applied. Speak with your 403(b) administrator, asking if there are penalties for withdrawals taken before you reach a certain age. Then, speak with your tax professional. Once you understand the tax implications you can decide if the costs of withdrawing the funds are worth bearing for the potential investment opporutnities you are considering.
    0 Votes

  • 35x35
    Aug, 2010
    Gary
    I will be 57 this year...have 116,ooo in my 403b...would like to use this to invest in a home..thinking of a withdrawal?
    0 Votes

  • 35x35
    Aug, 2010
    Cindy
    I am going through a divorce. My spouse has agreed to pay me a certain amt as a settlement. He will need to either borrow out of his 401k and pay himself back or cash a portion of it in...is it possible he can cash it in and avoid the penelties due to divorce or will he still incur the penalty...and will that money be mine or will I have to pay taxes on it?
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Your question is impossible for me to answer because the answer depends entirely on the rules for your 401(k), and whether you took a distribution or rolled the available balance into an IRA. Congress gave employers a large amount of latitude in creating the rules for their 401(k) accounts, and no two are alike. Get a copy of your 401(k) rules. Then either tap your inner lawyer and read them in detail, or hire an actual lawyer to do it for you.
    0 Votes

  • 35x35
    Aug, 2010
    jen
    I was terminated from my job last year and choose to withdrawl my 401k funds. I got my job back a month later. My first question is...What happened to the loan balance? I understood them to explaine that the balance would be taxed and treated the same as the check i recieved when i cashed out. Now i was just browsing the website and looked into a loan and it says that i have no pending loans. But if i try to calculate a loan it says i have reached my limit. I called an the person was confused at first and then said that it must be a deemed loan. That I have to pay it back still. Im confused. Also, when I cashed out i was 60% vested so i lost 40% of the matched money. Then I appealed the termination and won. So.. since it was my choice to cash out i still lose that money. right?
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    The answer to your question is "maybe." Consult with your 401(k) plan administrator to learn if taking a distribution from your 401(k) account is allowed. Congress gave employers a large amount of latitude in creating the rules for their 401(k) accounts. The 401(k) guidelines allow distributions, but your employer may have been very conservative and specifically disallowed pre-retirement distributions. The answer to your question can be found with your plan administrator.
    0 Votes

  • 35x35
    Aug, 2010
    Ty
    I want to cashout out my 401k to pay off my credit card debt. Is that even possible, will they let me do that. Please help
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Why not roll the one 401(k) into the IRA? Then you pay no penalty or income taxes. It was my understanding that the penalty tax was always taken at the time of distribution, but your message and similar messages from other readers indicates there are some financial institutions that are leaving the payment of the penalty tax up to the taxpayer to be paid when the taxpayer files his or her return.
    0 Votes

  • 35x35
    Aug, 2010
    Doug
    OK. Read a lot of these. I have a roth & ira, the ira I use to dump old 401Ks into. I had to switch jobs from one company to another and a financial management company holds the 401K. I have that seperate 401K that I need to roll or take the lump sum from. I go to the site and they show the amount minus the capital gains tax (20%) but no penalty (to take the lump sum). When does the penalty get applied? And as I understand it since they are taking out taxes I would have no further tax liability for that amount except if it threw me into the next tax bracket, Correct?
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Yes, ask your 401(k) administrator about the terms of a loan against your 410(k). You pay no penalty tax, and interest paid is applied to your account. A loan is a much better idea.
    0 Votes

  • 35x35
    Aug, 2010
    David
    I have about $94,000.00 in a 401K (fully Vested). My plan was to cash this out, Payoff my extensive credit debt and vehicle and relocate to another state. I know there is a 10% penalty and taxes to pay. Is there a better option?
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    I assume you are asking about taking a distribution from your 401(k) account. The facts in your message confuse me. You state you need $7,000 for a down payment, but that the plan will allow you access to $5,000, and then ask if this would be something worth doing. By my math, you are still $2,000 short if we ignore the 10% penalty tax you will need to pay immediately. I have an alternative idea. Ask your 401(k) administrator about a loan instead of a distribution. With a 401(k) loan, you avoid the penalty tax, and the interest you pay on the loan goes into your account -- in other words you!
    0 Votes

  • 35x35
    Jul, 2010
    Monique
    I am 27 years old and have a great opportunity to buy a home. I have 11,000 in my 401k and would like to cash it out to put it on the down payment for the house. I know I would at least be penalized for 30% but I only need 7,000. The plan does not allow me to take out more than 5,000. The house is a great buy and do not want to pass it up. Would this be something worth doing?
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    My answer assumes you are less than age 59½. According to IRS Publication 590, "You must include early distributions of taxable amounts from your traditional IRA in your gross income. Early distributions are also subject to an additional 10% tax..." In other words, the rules for an early distribution on an IRA are similar to those for a 401(k).
    0 Votes

  • 35x35
    Jul, 2010
    Michael
    I had been unemployed for 16 months when I decided to cash out one of my ira's. It was a rollover from the previous employer and was a 401K plan. When I cashed it out they said I could get the whole amount and pay taxes on it when I filed my taxes the next year. The distribution was $8000 and I paid a minimal early withdrawl penalty, which I believe was for the bank. How does this work? Will I just need to claim the $8000 as passive income at tax time or will there be additional amounts added for penalties?
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    I assume you are asking because of a pending divorce. If so, I cannot answer your question because I would imagine there are some states that do and I have not studied this issue for all US jurisdictions. Consult with a family law attorney in your state to learn a precise answer. If you are not planning to divorce and are seeking a hardship loan or distribution, you need to consult with the 401(k) administrator for your spouse to learn what vesting rules (if any) are in place for taking a distribution on the employer-contributed portion of the employee's account.
    0 Votes

  • 35x35
    Jul, 2010
    Stephanie
    My husband has a 401K that was matched 50% by his employer and I have a 401K never matched. Are the 401Ks valued differently by the courts for distribution due this issue?Thanks Stephanie
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    The answer to your question is clear if you are in financial distress -- take a hardship distribution or a loan from your 401(k). If you are not in financial distress then either leave your 401(k) balance where it is (assuming the administrator is doing a good job) or roll it into a IRA. Are you in financial distress?
    0 Votes

  • 35x35
    Jul, 2010
    JD
    I left my job back 2005 i know 4sure i had 401k distributions.Changed residence a cpl a times last acct summary i had dated 2005.finally traced acct summary had a lil over 6ooo.since i need the money i dont know if i should wdraw it or roll over to ira..not working at the moment.what should i do... thanks
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    I do not answer these types of questions because I never know enough about the reader's financial situation to make an accurate observation. Take your 2008 and 2009 tax returns to a tax planner or CPA. He or she will be able to review your entire situation and will give you a precise answer.
    0 Votes

  • 35x35
    Jun, 2010
    Wally
    I cashed out my 401K becuase I was in the middle of losing my home. 100K plus I had a loan against this so total was 121K I now make 85K and my wife makes 14K a yr so that will put me at 220K total income. My question is the 20% they held out for taxes 25K do you think I will need to pay more taxes for fiscal 2010? if so should I send quarterly? thank you
    0 Votes

  • 35x35
    May, 2010
    Bill
    I suspect there are other factors to be considered in your situation that were not expressed. Accordingly, consult with a tax planner or tax attorney in your area who can suss-out all of the details, and give you advice that is tailored to your situation. See also the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules for more information on distributions, and Topic 413 - Rollovers from Retirement Plans.
    0 Votes

  • 35x35
    May, 2010
    Jens
    My 401k has 48000 in it and an outstanding loan of 6000. How much will I get back if I cash out? Will only the 10% penalty be withheld or also the state and federal taxes? is it possbile to have only the 10% penalty withheld and pay the state and fedreal taxes in year 2011 (2010)? is it possible to rollover the cash out into another ira within 30 days and get back penalty and or taxes paid?
    0 Votes

  • 35x35
    May, 2010
    Bill
    Generally speaking, no. The language Congress used when authoring 401(k) uses no such automatic test for determining hardship. The hardship language in the guideline is more nebulous. That said, it is possible that one employer somewhere wrote into its 401(k) program that it will assume that a plan participant who has been unemployed for 12 months is automatically assumed to be distressed. If your employer wrote such language into its 401(k) plan rejoice. I don't think it is likely any did, I hasten to say.
    0 Votes

  • 35x35
    May, 2010
    Rod
    Hi Bill, Your site has been most helpful. I have been on unemployment for almost 12 consecutive months now. I read on my employers plan (Q&A section) that if you have been on unemployment for 12 consecutive months, then you can avoid the 10% early withdrawal penalty due to financial hardship when taking from an IRA....? Is the same true for a 401k? Please advise Thank you!
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    A Roth 401(k) operates with different rules from the "standard" 401(k). A Roth 401(k) contains post-tax funds. See the IRS document Retirement Plans FAQs on Designated Roth Accounts for a discussion of the circumstances necessary for a taxpayer to pay additional taxes when taking a distribution from their Roth 401(k).
    0 Votes

  • 35x35
    Mar, 2010
    Randy
    This discussion seems to focus on a standard 401K account. I have a Roth 401K where I have used post-tax dollars to contribute to it. Do I still pay the income-tax penalty (like the 20%) on a Roth-401K? It seems to me if I cash out I would pay the 10% penalty and them maybe tax on the gains only (??) -- however, if I have actually lost value in my Roth-401K, would I pay anything more than just the 10% early withdrawal penalty? Does it matter if you decide to cash-out before the minimum 5-year hold period? Thanks for any input/suggestions on this.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    How to determine the answer to your question is discussed in the article above.
    0 Votes

  • 35x35
    Feb, 2010
    Kelly
    I am 29yrs old and have $6,388 in a cash balance pension plan from my old company that laid me off in 2006 (in NJ). Going through hard times (like everyone else) and wanted to cash it out. My old company said their are no penalties on their part. I am roughly making $16k a year working part time now and expect it to stay the same for next year. After penalties and taxes what amount am i looking at?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    I do not, but would like to hear from any readers who know of a legal means to deduct the 10% penalty tax.
    0 Votes

  • 35x35
    Feb, 2010
    Renae
    When I left my job, I cashed out my 401k to start a business. I was told that there is a way to deduct the cost of receiving that money towards business expenses. So the 10% penalty and some of the federal income taxes that were paid. Does anyone know anything about this.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    The 401(k) administrator should have deducted the 10% penalty tax from your distribution. The amount deducted would have been sent straight to the IRS. If the administrator erred and did not deduct the 10% tax, then you are liable to pay it. See the IRS document Index of Applicable Federal Rates (AFR) Rulings. The IRS does not have a set rate charged. You may also be liable for penalties.
    0 Votes

  • 35x35
    Feb, 2010
    john
    in 2006 i cashed out my 401 they took the 20% taxes i understand i have a 10% penalty. is that 10% of amount before taxes or after taxes. i have not paid that penalty yet. is the irs charging interest on the penalty till its paid. what do they charge for interest if they do?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    You will receive a Form 1099-R from the plan administrator by January 31 of the year following the year of distribution.
    0 Votes

  • 35x35
    Feb, 2010
    James
    I recently cashed out my 401k, and the trade was executed on 12/31/09, but the check was not processed and mailed until 1/5/10. Will the distribution be considered part of my 2009 or 2010 taxes?
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    See the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules. The 10% penalty tax is imposed if you are less than 59½ years of age. There are no offsets available for the 10% penalty tax. You may want to consider a loan from your 401(k) instead of a distribution.
    0 Votes

  • 35x35
    Jan, 2010
    Chris
    Hello, my question is this, I have a pension and a 401k from my employer. I will be receiving a severence and would also like to take out the 401k and pension. I have read about the 10% penalty, but I was thinking about starting my own business, would this help my tax situation? Would this be considered an investment and help in anyway?
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Regarding the taxes on the distribution, I agree with your analysis. Regarding the loan, I am uncertain if the loan is still in effect (i.e., you are still paying it off), so I cannot comment on your calculations there. An unpaid loan taken on a 401(k) is treated like a distribution at the loan date. If you are converting the loan into a distribution then you should withhold the 10% penalty tax (assuming you were less than 59½ at the time of the loan) plus your usual tax rate (in your case 15%).
    0 Votes

  • 35x35
    Jan, 2010
    Jodie
    I cashed out my 401k at roughly $20,000. At that time I payed 20% of the taxes due. I also left behind $7,000 in 401k loans that were not payed back. I do believe I fall in the 15% tax bracket this year. Will I only then have to pay an additional 5% on the amount I cashed out and the then 25% on the loan? THX
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    The 10% penalty tax should appear on your 1099R that will be sent to you by the administrator. If it was not withheld then you must pay it when you file your 1040 for the 2009 tax year.
    0 Votes

  • 35x35
    Dec, 2009
    Paula
    I cashed out my 401k 1/21/09 at 27yrs old and I see 20% Federal Income tax withheld but no 10% early withdraw penalty. I also see the State income tax withheld too, I just don't see any 10% early withdraw fee anywhere. Will I see that at tax time or could something not be right? This was not a Financial Hardship.
    1 Votes

  • 35x35
    Dec, 2009
    Bill
    First, you need to determine if you qualify as disabled under subsection (m)(7). See § 72. Annuities; certain proceeds of endowment and life insurance contracts for the following distribution rules for 401(k) and similar accounts:

    (t) 10-percent additional tax on early distributions from qualified retirement plans
    (1) Imposition of additional tax If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
    (2) Subsection not to apply to certain distributions Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
    (A) In general Distributions which are - (i) made on or after the date on which the employee attains age 59 1/2, (ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee, (iii) attributable to the employee's being disabled within the meaning of subsection (m)(7)

    Subsection (m)(7) reads as follows:
    (7) Meaning of disabled
    For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.

    If I read Section 72 correctly, if a person qualifies as disabled under subsection (m)(7), he or she may take a distribution from a 410(k) plan without paying the 10% penalty. As to how to report the income, 401(k) Resource Guide - Plan Participants - General Distribution Rules states "To report the tax on early distributions, a participant may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. See the Form 5329 instructions for additional information about this tax."

    Second, you do need to report the distribution from your 401(k) on your income tax form (1040, 1040a, etc). See Publication 575 for details.
    0 Votes

  • 35x35
    Dec, 2009
    leonard
    i am 57 years old recieving disability benefits because i cant work anymore but i have 401k plan can cash it in and not be penalized and do i need to report my 401 k to the social security board.
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    I recommend you return to your plan administrator and really listen to the reasons why you may not receive a distribution from or liquidate your 401(k). See the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules to learn more about the general rules for distributions. Keep in mind that Congress set boundaries for 401(k) distributions, and allowed employers to create more stringent distribution rules when setting up their plans. Your plan administrator will have information on your plan's specific rules. Your employer may have rules that prohibit any distributions except upon termination, death, or retirement, or other narrow situations. That is why I urge you to return to your administrator.
    0 Votes

  • 35x35
    Dec, 2009
    rodney
    i have a little over 5000.00 in a 401k with my current employer they dont match anything i contributed the whole amount i wont to cash it out they are telling me i cant do that.i asked not even with a penalty they said not even with a penalty.what is up with this its all my money can someome help me with this?
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    My window into your financial situation is tiny, so it is impossible for me to say with certainty that you will see a tax refund. Tax law is complicated, and you may have 100 different reasons and circumstances you did not mention in your four-sentence message that would require you to owe taxes for this year.
    0 Votes

  • 35x35
    Nov, 2009
    Kim
    I was laid off on Dec. 31st 2009, I cashed out my 401k to live on, it was only about 3000 and they took out taxes. I have been on unemplyment all year and have been taking out taxes. My question is, will I get any refund on my taxes this year? I have 2 children and am a single mother.
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    If your plan allows distributions you will pay a 10% tax plus your usual tax rate. See the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules to learn more about the general rules for distributions. Keep in mind that Congress set boundaries for 401(k) distributions, and allowed employers to create more stringent distribution rules when setting up their plans. Your plan administrator will have information on your plan's specific rules.
    0 Votes

  • 35x35
    Nov, 2009
    Elizabeth
    getting behind with student loans and morgageloans need to withdraw money from my 401k is this possible? What would the penalty be on 8000 dollars
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    As a general rule, I do not like the idea of raiding a 401(k). In your present situation where you are living "month to month," that would not qualify as a hardship under the 401(k) rules. Therefore, you would be required to pay a 10% tax in addition to your customary income taxes. I am curious what you mean by "breathing room." Morning stops at Starbucks? A new HDTV? If you are surviving now on your present income and expenses, you can continue to survive if your income or expenses do not change. Reserve dipping into your 401(k) for emergencies only.
    0 Votes

  • 35x35
    Nov, 2009
    Kevin
    My wife and I are a year into a Chapter 13 BK and hardly have any/if any money left over each month once we pay on the plan, mortage and household expenses. My wife is not currently employed, but has about $11,000 in a 401K that we are considering cashing in to give us some breathing room each month. We figure that it is not that large of an amount and will do us more good now to get us through our plan, than holding on to it for later and living each month hoping a large expense doesnt' come along. Your thoughts?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    I want to be very conservative with my thoughts here, and I want you to be very careful with your actions. Call the agency in your state that administers unemployment benefits. Ask the representative if receiving a 401(k) distribution should be counted as income on the weekly income report you must send the state every week or two. Listen carefully, and write down the answer you hear, including the name of the representative, and the date and time that you called. Take complete notes. Then call back later and ask the same question to a different representative. Again take careful and complete notes. If the two responses match, then you have an answer.
    0 Votes

  • 35x35
    Oct, 2009
    Matt
    Hi, I am 31 and on unemployment. When I was laid off my 401k was paid out to me minus the ammount of the loan I had against it. Now 6 six months later I recieve a statement with a positive balance. I could really use the money but I don't know what this will do to my UI benefits. Will it affect it, and if so how?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    I recommend that you take this question to your divorce attorney, who will be able to look at your entire financial and tax situation. I simply do not know enough about your situation to offer you useful advice.
    0 Votes

  • 35x35
    Oct, 2009
    Edwin
    Hi I am a 39 yeard old, unemployed for 14 motnhs but having left a couple months of unemployment benefits. My wife and I divorcing, so she will keep some assests but has agreed to give $23,700 from her 401K. Iam planning in cashing that money out as I am in need of money. What is the amount of taxes and penalties that I would have to pay for it? I also would recevied about 20,000 in unemployment benefits by the time the benefits run out. Please help, the idea is that I would end up with 19,000 in cash, after the cash out
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    An Employee Stock Ownership Plan (ESOPs) is an employee benefit plan similar to a profit-sharing plan. In an ESOP, a company sets up a trust fund into which it contributes new shares of its own stock or cash to buy existing shares. There are tax rules ESOP plan administrators need to follow, but none that I am aware of (readers please correct me if I am wrong) that deal with distributions to an employee before the customary retirement age. Accordingly, check with your plan administrator to see what the rules are for distributions.
    0 Votes

  • 35x35
    Oct, 2009
    Brent
    Will taking out my esop to pay off my house still be subject to the same penalties.
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    First, regarding the unemployment benefit question, see my reply to Lisa above dated 7/20/2009. Second, regarding the hardship question, according to IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules, a 401(k) plan may allow you to receive a hardship distribution because of an immediate and heavy financial need. Losing a job does not in and of itself create an immediate and heavy financial need. See the IRS document I cited for needs that do qualify.
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    State family law varies tremendously, and not knowing the state you reside in makes giving you a meaningful answer impossible. For that reason, I urge you to consult with an attorney experienced in family law in the state where you reside. Your attorney will ask about when the contributions to the 401(k) were made (how much pre-marriage), and the source of the debt and when it was incurred. Your attorney will also want to see any pre-nuptial agreement you signed.
    0 Votes

  • 35x35
    Oct, 2009
    earl
    I am going to get a divorce, soon. I have about 60,000.00 in a 401k from a former employer that is in a self-directed account, now. I have made about 10,000.00 in the last 6 months buying and selling stocks. I have about 20,000.00 in odd and end debt and know the penalties for cashing, but want to be free of it all and start again. I am 47. Still have time to save, again. The deal is, if she gets a portion of about 5 to 10 thousand of it in the divorce, would I not be better off to take the loss now while we are still married, but seperated so she doesn;t get it at the divorce. I would be paying off bills incurred during our marriage. Seems to make sense and benefit me the most. (Second wife and no children.) Would appreciate your opinion. Thanks.
    0 Votes

  • 35x35
    Oct, 2009
    Misty
    I would like to know how much it will affect my unemployment when I cash out my 401k ? My job is being shipped to Mexico. So I think that should be considered a hardship.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    A simple IRA is from "pre-tax" funds. Money deposited in an IRA account is exempt from income taxes. In most cases if you are rolling a 401(k) into an account, it would be to a simple IRA. By contrast, a Roth IRA consists of post-tax funds. A Roth IRA provides tax-free earnings on after-tax contributions. Because your contributions have already been taxed, you can withdraw them from a Roth IRA at any time tax-free. Generally, if your account has been open for at least five years, your earnings are tax-free when you withdraw them. However, you must usually be 59½ or older in order to avoid paying a 10% early withdrawal penalty tax on your earnings. There are some other exceptions as well. See the IRS document "IRA Online Resource Guide - Information About Roth IRAs."
    0 Votes

  • 35x35
    Sep, 2009
    Brian
    Is their any advantage in my situation to rollover to a new traditional IRA or do a Roth IRA? I guess I'm confused when an individual would do a Roth IRA over a traditional IRA.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    Rolling a 401(k) into an IRA isn't the end of the world. In fact, many people like rolling their 401(k)s into IRAs so that they have control over where the money is invested and the added flexibility of taking distributions. Look at your retirement accounts in aggregate and not as a balance at one investment firm. As you get older and work for more organizations, you are going to develop a collection of retirement accounts; and that diversity is not a bad thing. For more information on rollovers, see the IRS document "Topic 413 - Rollovers from Retirement Plans."
    0 Votes

  • 35x35
    Sep, 2009
    Brian
    I am 29 yrs old and was recently laid off from my employer after 5 yrs and a 401K balance of $8,000. I'm clear on 10% early withdrawl/cashout penalty and taxable income stuff but my question is can I simply roll over the balance into a traditional IRA and then when I get a new job (hopefully soon), roll that account into that next employer's 401K plan? any fees, costs, etc. with that scenario. I guess I'm worried that I'll be forced to keep that $8K in a traditional IRA and start over with a new 401K with next employer. if that's the case I might as well cash out now...
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    I recommend you ask this question to your bankruptcy attorney. He or she has a better view of your financial situation, and an understanding or opinion on why a 401(k) loan precludes you from filing bankruptcy.
    0 Votes

  • 35x35
    Sep, 2009
    Cathy
    We want to file Chapter 7 bankruptcy in Ohio,but from talking with a bankruptcy attorney, he informed us since we have a 401k loan, we would not qualify. We have about 12,000 out yet. This is an employee sponsored 401k so it is payroll decucted. Can we ask the loan administrator that we want to stop making payments and make the loan taxable. Yes, I am aware of the tax penalities and the 10% early withdraw fee. What is the best approach to this and what wording should we use when we call our loan administrator.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    Bruce, please see my answer to Brian above, dated August 21, 2009. Regarding the IRA, I do not see that it would be necessary for you to roll your 401(k) into an IRA to make a hardship withdrawal under the circumstances you outlined. However, you can do what you suggested and endure the penalty.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    Jonathan: If you are asking whether you can offset the early withdrawal penalty with your capital losses, the answer would be no. Unless you can prove that you are going through a hardship (as per the rules specified by the IRS, 401 (K) General Distribution Rules), there is no way to avoid that penalty.
    0 Votes

  • 35x35
    Sep, 2009
    Bruce
    I work for a Autodealership as a tech, I am paid on a flat rate pay system meaing I only get paid on the time the service writer gets for the job. Due to the poor economy people are not bringing their cars in to be fixed and thus I now bring home less then half of my former pay. I cannot afford to continue to work where I do. Unemployment pays more , which I dont want either. If I end up being laid off (which is likely)I would need to close my 401k to feed my family, pay mortgage, pay other bills etc. My bank savings are now exhausted since I used them to suppliment my income for the past year. Would this fall under the hardship provision, could I roll it to an IRA and then borrow against it? Im at a lose and at wits end. Bruce
    0 Votes

  • 35x35
    Sep, 2009
    Jonathan
    I'm 49 years old and I have 305K in my 401K, I understand 10% penalty and tax. I have around 50K capital losses from my stock trading. My question is can I uses my capital losses toward Tax if I cash out my 401K. Thank you.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    If you are receiving funds from your ex-spouse's 401(k) or a Qualified Domestic Relations Order (QDRO), you should consider depositing that money directly into an IRA to avoid any mandatory tax withholding. I urge you to speak with an investment adviser (or two) before taking any action with your divorce settlement. He or she will probably advise you to invest in a balanced portfolio that includes very conservative and liquid investments and an assortment of riskier, higher-return accounts.
    0 Votes

  • 35x35
    Sep, 2009
    Marylee
    I am 50 years old and divorced last year. I am working. Have no benefits, however. I will shortly be receiving half of my exhusband's company savings plan, around $120,000. I plan to withdraw it, pay the taxes, etc. and re-invest some of it in short and long-term cds, and the rest into maybe a money market account, etc. Does this make sense? It seems that re-investing it would at least give me some access to cash when needed and the returns on the cds, etc. will offset the tax liability. Not all, but some.
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    Brian, according to IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules, a 401(k) plan may allow you to receive a hardship distribution because of an immediate and heavy financial need. According to the IRS document cited, a immediate and heavy financial need includes, "Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence." If you will be evicted from your residence if you do not receive a distribution from your 401(k), then you may be able to argue to your 401 (k) administrator that your distribution request is for an immediate and heavy financial need.
    0 Votes

  • 35x35
    Aug, 2009
    brian
    I am 53 and lost my job in February of 2009. I haven't found employment as of yet, and my only source of income is un-employment. My current bank balance is $5.14 (until my next un-employment check). I have a 401k (vested) with $14,000 in it and really need to cash this out to pay bills, rent, etc. What is the best way to do this? Does this qualify as hardship? I've never done this before so I'm a bit worried.
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    Chasity: A Tax-Sheltered Annuity Plans (403(b) Plan) is a retirement plan for some employees of public schools, employees of tax-exempt organizations, and ministers. According to IRS document 571 "Distributions and Rollovers" "You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. Before you receive a distribution, your plan will give you information on this. It is generally to your advantage to choose this option because your plan will not withhold tax on the distribution if you choose it." I recommend that you do NOT receive a distribution directly unless your spouse is older than 59.5 years old.
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    Sarah: The answer to your question is somewhat of a gray area. Please see the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules. There is zero penalty if the 401(k) distribution is for "Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents." The key part of the sentence here is "...for the next 12 months..." which tells me that the distribution is for FUTURE educational expenses, and not PAST expenses. I recommend you take this question to a tax attorney.
    0 Votes

  • 35x35
    Aug, 2009
    Sarah
    Just wondering if anyone knows what type of penalties there are for taking money from a 401k to pay off a student loan?
    0 Votes

  • 35x35
    Aug, 2009
    Chasity
    My husband left a job over a year ago and we have not rolled over his 403b. Is there a deadline for when you have to rollover or can it stay there? The job he is at now has 401k. It isn't very much money we just didn't know what would be the best action. Or if they would finally just send a check for the amount in there?
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    Lisa: Each state sets the rules for distributing unemployment compensation. You need to sit down in a quiet place with the rules and benefits booklet that the state unemployment agency sent you and find if receiving a distribution from your 403(b) is income. It may not be depending on your age. If your state does not spell out the rule regarding 401(k) or 403(b) distributions, call your state agency that administers the program (they all have 800 numbers) and ask if 403(b) distributions are a) income and b) if distributions need to be reported on your bi-weekly claim. Take careful notes, and record the name of the agent you spoke to, the date, and time. Call back again later and ask a different agent the exact same questions. Take notes. If the agents are consistent, there's your answer. As I mention elsewhere on this page, do what you can to avoid touching your retirement savings.
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    Tonya: I have an idea regarding your tax refund, which I will discuss in a moment. First, Do NOT touch your husband's 401(k), with the exception of rolling it into either a plain or Roth IRA. Pretend the money isn't real -- it exists only on paper, and is sort of like Monopoly money. Through the miracle of compound interest, that $10,000 at 5% interest will grow to $42,000 when your husband reaches 67 years of age. If your husband sets aside $1,000 a year in his present employer's 401(k), that $10,000 at 5% will grow to more than $126,000 when he reaches 67. If you take a full distribution of $10,000, you immediately lose $1,000 in a penalty. Then, you'll pay $2,000 to $3,000 in income tax right off the top. Do you really want $7,000 now, or $42,000 later? Go to 401(k) Resource Guide - Plan Participants - General Distribution Rules to learn more about distribution rules. Regarding your tax refund, your husband needs to alter his deductions to reduce the amount of taxes withheld from his paycheck. He gave Uncle Sam a $7,400 interest-free loan last year. Sit down with a IRS form W-4, and go over the Personal Allowances Worksheet to determine the optimal number of allowances your husband should claim. This will result in a smaller tax refund than you have had before, but more take-home pay. Oh, and if I forgot to mention it, leave the 401(k) money alone.
    0 Votes

  • 35x35
    Jul, 2009
    Lisa
    Hello, I became unemployed on 6-19-09 and have not yet started to collect UC. I have requested the forms needed to cash out my 403 (b) (I was told that until Vanguard receives the comnpleted forms back from me, Nothing will be done. My question is, when I call in my bi-weekly claims to UC, do I have to report this as INCOME? If so, this will reduce or eliminate my UC payments for about 2 weeks or more? I was hoping to get ahead of the game by cashing this out, as we live week to week we are in desperate need of a new (used) vehicle. My fiance is Peramanantly Disabled and only receives 650.00 per month from SSI...The little savings we had are nearly gone.... Thank you in advance for your advice.
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    In general, I believe people should leave their retirement accounts alone until they retire. Ignoring the penalties for a moment, you set that money aside for your retirement years, and it will take years for you to rebuild your retirement account back up to its present level, not to mention the loss in compound interest you would have gained. If you think you really must plunder your 401(k), talk to a tax accountant about your unique situation with the farm. You really don't want a surprise next April 15 if your assumptions about your farm income/loss and 401(k) penalties are incorrect.
    0 Votes

  • 35x35
    Jul, 2009
    glenn
    I was laided off in Feb 09. NO income except unemployment I have 37000 in a 401 that the company is dropping so we are told we have to do something with it.Thinking of cash out. I also farm a quite of bit, which over the years I have past deductions to still write off my yearly income which this year is going to be very small. So with the adjusted income for duductions should I maybe able to get some of that 20% tax back? Dont much care about the 10% The 401 k lost more the that when things went south.
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    A 403(b) is a tax deferred retirement plan available to employees of educational institutions and some non-profit organizations. Contact the plan administrator for your former employer's rules regarding this type of situation. It's likely they will consider the un-repaid balance a withdrawal, which will have significant tax implications for you. I would strongly urge you to not accept a distribution of your 403(b). Instead, tell the employer that you are rolling your 403(b) account into an IRA, then do that. It's tempting to grab the cash now, but you will pay a hefty penalty for doing so. It is better to delay your gratification and leave the 403(b) money aside for your retirement.
    0 Votes

  • 35x35
    Jun, 2009
    faith
    i took a loan on my 403B and left the company,without paying off my loan, for another job. whats going to happen to my loan? also i am planning to withdraw the remaining amount. am i going to pay a big amount of money on my income tax?need your advise please.
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    As far as I know, if you withdraw before the age of 59 & 1/2 you will have to pay the penalty. it will be best if you find out from your plan administrator, whether you qualify for a hardship based withdrawal.
    0 Votes

  • 35x35
    Jun, 2009
    Ellen
    I was laid off two weeks ago. I have $ 2,991.00 in my 401K. Since my money is below 5K the HR told me that I can withdraw it within 6 months if I still don't have a job. Do you think I have to pay penalty for early withdrawal even I got laid off?
    0 Votes

  • 35x35
    Jun, 2009
    Mark
    The IRS believes the employer did not withhold enough in taxes and penalties, which it may or may not have. Your friend might want to consider working with a company like Freedom Tax Relief, which can help him determine 1) if the IRS is correct, and 2) what he can do about the obligation given his financial condition. We profiled Freedom tax Relief in the following blog entry: http://www.bills.com/freedom-tax-relief/ Finally, if your friend is disabled and unable to work due to a disability, he may be eligible for Social Security benefits. See this page for more information: http://www.ssa.gov/disability/
    0 Votes

  • 35x35
    Jun, 2009
    Marvene
    A friend of mine took an early retirement and cashed out of his 401 plan in 2007. The amount was $260,000 and they took out $50,000. He asked the company to take out all the taxes and penalties and give him the remainder, which they did taking. He then paid off outstanding debt and made long needed improvements on his house. Meanwhile he has injured his back and severed the artery and ligaments etc in his right hand, yes he is right handed. He is no longer able to do the machinist type of work he did for 31 yrs. He received a letter from the IRS stating that he owes them more money. It seems that his company did not take enough out and now he has little money left, is unable to work and they want an additional $40,000. What went wrong and what recourse does he have?
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    I am always of the opinion that you should leave your retirement savings alone, but at the end of the day, it is your money and you can withdraw it if need be. You will lose a lot of money by way of penalties and taxes. You will pay an early withdrawal penalty of 10%. How much taxes you will owe, will really depend on the total income for the year (including this withdrawal of $5000). If you are asking my opinion, then I would have to say that this is not a good idea.
    0 Votes

  • 35x35
    Jun, 2009
    Brian
    Hello, I am 27 years old and live by myself with no family. I was involuntarily fired from my job in March 2009 for missing a key day at work. I haven't been able to find another job since and I need some extra money bad, and I have about $5,000 in my 401K which was accumulated over the 8 1/2 years I worked at my job. I was considering cashing it out, do you think this is a good idea? I really need the money to get by since I can't collect unemployment since I was fired for "cause." If I cash it out, how much will I get after any withdrawal fees and taxes? I also live in Ohio. Do you think cashing out is the right play?
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    You will need to clarify this with your plan administrator. i am not sure how they applied the 20% that was withheld. Usually, it is the total amount withdrawn, that is added to your income. Meaning, if your gross was $100K, it would total to $111K and you would be liable for taxes as per that bracket. As far as the penalty, you will pay 10% on the 11K. Depending on how your plan administrator allocated the 20% withholdings, you still might have to pay some taxes and/or the penalty. I also suggest that you consult with a CPA.
    0 Votes

  • 35x35
    Jun, 2009
    David
    I am under 59 1/2 years old. I took two withdrawals from my 401k this year, 9k and 2k (Total 11k). 20% was withheld on both of these. I am assuming an additional 10% penalty will apply to this total withdrawal amount ($1100). Will the 11k also be applied to my annual income or will the net amount be applied? I netted roughly $8800. I am also assuming this could put me in a higher bracket depending on my total deductions. Am I correct on all this? (ie. If I go from gross 100k, net 82k to say 90k as a result of these withdrawals, will I be taxed higher overall?) Thank you.
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    You need to look at it this way: the $27000 you withdrew, will be treated as income and you will add it to your regular income for the year and pay whatever the applicable taxes are as per your income bracket. The penalty for early withdrawal is 10%.
    0 Votes

  • 35x35
    May, 2009
    CashCow
    Withdrew 27000 from my 401K to help me as I was relocating to a new town for my job. Was to help with transition costs. Took the money as a loan and intended to pay it back. I lost my new job(!) and ended up having to take the money as a distribution this year to help me with expenses. My question is with taxes which I will need to pay in 2010 on 27000. As I understand it, I will pay 20+10% in taxes on that distribution...is that correct? Is there any other penalty I need to plan for?
    0 Votes

  • 35x35
    May, 2009
    Bill
    If the taxes that were already withheld are sufficient to cover your obligation as per your tax bracket, then you will not have to pay any more taxes.
    0 Votes

  • 35x35
    May, 2009
    Tom
    I'm 62 years old lost my job, I took my 401k in a lump some. I paid taxes at a 20% rate on 218k or 43,600. I will make with severance pay and my wife's income about 115k after deduction for the year, will I only pay taxes on the 115k or will their be more taxes on the 401k distribution.
    0 Votes

  • 35x35
    May, 2009
    Bill
    Ideally, you should not cash out your retirement savings at this young age, so the answer is: you should roll them over. I know that it is very tempting to just withdraw the money, but after you calculate what the penalties and taxes will be, you will learn that you will loose a lot of money if you do withdraw.
    0 Votes

  • 35x35
    May, 2009
    Jennifer
    I have recently changed jobs and have relocated i'm trying to sell a house, so I have a mortgage and a rent payment right now. I have been out of work for a month. I have 12,500 in my 403b should I cash out or rollover my 403b? I'm 32 years old and I am 13,000 in debt right now.
    0 Votes

  • 35x35
    May, 2009
    Bill
    If you do not pay it back, they will make a withdrawal form your 401k savings, this will be treated as an early withdrawal (if you are below the age of 59 & 1/2 years old) for which the penalty will be 10%, this is on top of the regular income taxes that you will owe.
    0 Votes

  • 35x35
    May, 2009
    jay
    just got laid off, i owe $5,000 on a 401k loan, what will my penalty be if i dont pay it back.
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    There will be a penalty of 10% of the amount withdrawn for the early withdrawal. You should check with the plan administrator to see if the fact that you are unemployed will qualify you for a hardship based withdrawal, which will not carry a penalty.
    0 Votes

  • 35x35
    Apr, 2009
    Bob
    I am 43 years old and am unemployed for the 1st time in my life. I was making $100,000.00 a year when I lost my job and if I do not find something soon, my family (wife and 3 kids) and I will be in deep trouble. I have close to $28,000.00 in my 401K from my former company and may need to take this money out to keep afloat. What sort of penalty will I face if I cash out the 401K?
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    Yes, this will still count as income. You should be getting a form 1099c from the company which you will have to declare on your taxes.
    0 Votes

  • 35x35
    Apr, 2009
    jason
    I am collecting unemployment currently , I just cashed out my 401k from my last employer.It was only a few hundred dollars.The money was not vested as I was not at the employer long enough to get the matching funds.Do I have to count this as weelky income with unemployment.
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    You have to meet the hardship criteria set forth by the IRS to avoid the 10% penalty.
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    Yes, sometimes employers can specify rules for withdrawal.
    0 Votes

  • 35x35
    Apr, 2009
    Mike
    I have seen posts for people wanting to cash in their 401k for things like paying off debts, homes, vehicles, etc. Things that are not on the govt "hardship" approved list. Is the difference only that the penalty does not apply, or are you prohibited from withdrawing unless you meet one of the govt criteria? Thanks!
    0 Votes

  • 35x35
    Apr, 2009
    Chris22
    My employer states in the 401k policy that early withdrawals, including hardship withdrawals and loans are not allowed. Is it true that a plan can refuse or prohibit a withdrawal request?
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    No, you will not pay a penalty as you are above the required age of 59 & 1/2. The taxes that you would pay on this amount will depend on how much your total income for the year will be (inclusive of this withdrawal). For example, if your income for the year is $40,000, you add the $10,000 withdrawal to it and pay taxes on $50,000 as per the Federal and State tax rates.
    0 Votes

  • 35x35
    Apr, 2009
    d
    I am 60 yrs old and retired from post office with 10,000 in 401K.. I want to cash whole thing out, but I don't know what kind of taxes I am going to pay.. Can you approximately tell me If i will have to pay pentallys.
    1 Votes

  • 35x35
    Apr, 2009
    Bill
    The penalty for early withdrawal is 10% flat and this is in addition to the regular income taxes you will have to pay. But you should check to see if you qualify for hardship based withdrawal (because of your medical problems). There will be no penalty if you qualify. You should talk to your plan administrator to find out. You can read more about hardship withdrawals here: http://www.irs.gov/retirement/article/0,,id=162416,00.html
    0 Votes

  • 35x35
    Apr, 2009
    Theresa
    I am 58 years old and work part-time. My husband is same age and grosses about $40,000 a year. I have spent the last 8 years battling leukemia and am now in remission, however we have racked up $24,000 mostly in credit card debt. I had a 401k with $60,000 that is now down to $35,000 and I want to cash it out to get out of debt to improve our credit score and stop living pay check to pay check. What will the penalty be for that?
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    If you withdraw before the age of 59 1/2 you will be penalized at the rate of 10%. Meaning, if you withdraw $90000 you will only get a check for $81000. Not only that, you will then get a 1099 for the $90000 and will have to add it to your regular income. Lets say you make $80000 a year, you will be adding $90000 to it and will have to pay income taxes for $170000.
    0 Votes

  • 35x35
    Mar, 2009
    leo
    i am 34 with a 401k that is worth 90,000. i have contributed 125000. i am considering selling my 401k and putting it towards my debt. what would be my tax. i am not sure how to compute it.
    0 Votes

  • 35x35
    Mar, 2009
    Connor
    I am not aware about anything that relates to 401k plans yet. You have to know that any withdrawals from your 401k before your turn 59.5 years old will be assessed a 10% penalty. The rules on loans against 401k savings vary from one company to another, so I am not surprised that they are asking you to pay back the entire amount. If you can't pay on the loan yourself, then they will consider the amount that is needed to for the loan as a "withdrawal". If you get employed again, you will be able to transfer your 401k account to your new employer (including the loan) and hopefully will not have to pay this penalty.
    0 Votes

  • 35x35
    Mar, 2009
    Kristi
    Last year I made a 25K loan against my 401K, paying back the loan weekly over 5 years. This purchase was to finance my daughters 1st home. I was laid off in January and was told I could no longer make payments toward my loan, but instead had to pay in full within 90 days or suffer the early withdraw tax penalty. Do you know of anything, maybe something in the stimulas bill that may help somebody like me?
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    Different 401k firms have different rules when it comes to withdrawing the money. Some might have a lock in period while others might restrict your withdrawal. I think you can make a withdrawal, but if you are younger than 59.5 years, you will have to pay a penalty of 10% on top of the income taxes.
    0 Votes

  • 35x35
    Mar, 2009
    mike
    I am still employed. I took a loan out on my 401K. I wan to withdraw the rest to invest into a business. I spoke to prudential and they say I can't do that. I can't understand why I can't get my money out and pay the taxes on it. The business opportunity will double my investment within a 1 1/2 years time. What can or shoulod I do?
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    Yes, you will still be eligible for unemployment benefits. The fact that you withdrew from your 401k will not change anything.
    0 Votes

  • 35x35
    Mar, 2009
    Bryster
    Recently I was laid off. I have cashed in my 401K about $10,000 to pay off depts and pay for Cobra. Will I still be able eligible to collect unemployment benefits?
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    No, you don't have to move the money. You can leave it, or if your new plan can consolidate 401ks (a firm like Fidelity) then it is your option but many people will move the funds to keep them in one place. Hope that helps.
    0 Votes

  • 35x35
    Mar, 2009
    Janey
    I was laid off July 08 and have small amount (about $13,00) in 401K. Should I or do I have to move that money elsewhere? I am currently starting a job that I will have access to another 401 program. What should be my next step? Thanks
    0 Votes

  • 35x35
    Mar, 2009
    Beth
    I rolled over a 401k from a previous company one and half years ago. Due to the bad market my 45000 has dropped to 22500. I am thinking about withdrawing to pay off credit card debt while there is still money to withdraw. I am aware of the penalties and taxes but feel in the long run it will benefit more to do this. Is this a good idea?
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    No, this is not a good idea, you will better off by rolling over the money into an IRA.
    0 Votes

  • 35x35
    Jul, 2009
    Tonya
    I am 30 yrs old and my husband is 35yrs old. He is the only income in our household. He has 10,000 in a 401k from his previous employer.He made around 52,000 last yr and we got back 7,400. We are a family of four and could use this extra money. Do u have any idea what cashing this out would mean for our tax refund? Any help would be appreciated?
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    That really depends on the length of the loan and the opportunity cost of not letting the 401k savings grow by withdrawing it prematurely. I agree that one has to use their after tax dollars to pay the loan back, but I think you are forgetting that your pre-tax dollars stand to earn money if left in the 410k plan. In any case, a loan is only recommended if the a person has a long way to go before retirement.
    0 Votes

  • 35x35
    Feb, 2009
    Dale
    Why would you advise anyone to ever take a loan from their 401k, vs a withdrawal? If I take a loan, I pay back with after tax dollars & pay the tax again on withdrawal ( pay tax twice!!) At least with withdrawal I only pay tax once plus 10% penalty if under 591/2. Cheaper than paying income tax twice.
    0 Votes

  • 35x35
    Feb, 2009
    John
    If your savings are loosing money you should switch them from aggressive plans that include stocks and mutual funds to bonds and cash. Whether you withdraw or not is your call. Do the math, see how much it will cost if if you withdraw it all at once to see if it will offset the loss. Also talk to your plan administrator to see if they can switch your investments.
    0 Votes

  • 35x35
    Feb, 2009
    deb
    the stock market is so bad that i am losing a quarter of my 401k quarterly, should i take out my 401k with a penalty while there is still any left to take?
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    Dave, Once you have reached the qualifying age of 59 1/2, you can make penalty-free regular withdrawals. For more information on how to avoid penalties, check these websites: 1. http://beginnersinvest.about.com/cs/iras/a/aairafees.htm 2. http://www.irs.gov/retirement/article/0,,id=162416,00.html
    0 Votes

  • 35x35
    Feb, 2009
    dave
    I am almost 60 and need to take money out of a simple ira.can i do thiss if i am still employed?
    0 Votes

  • 35x35
    Feb, 2009
    Sam
    Regardless of the fact that your husband had a medical hardship at the time of his cashing out his 401k account, his estate would likely still be liable for income taxes and for the 10% early withdrawal penalty. A hardship does not exempt anaccount holder from the 10% withdrawal penalty; rather, the hardship withdrawal program is designed to allow account holders to withdraw a portion of their 401k funds (at their plan administrators' discretion) rather than requiring that they cash out the enitre account to access the funds. For both hardship withdrawals and early cash outs, the account holder would very likely be charged the 10% early withdrawal penalty if he/she was younger than 59.5 years old when the withdrawal or cash-out took place. However, the fact that your husband passed away so soon after the account was cashed out may affect his estate's overall tax liability, which could minimize the negative impact of the penalties associated with the 401k funds. I strongly encourage you to consult with a tax attorney or certified public accountant to discuss the tax liability of your late husband's estate, and how those taxes may affect your personal tax obligations. To read more about the consequences of withdrawing funds from a 401k, you can visit http://www.401khelpcenter.com/401k_education/hardship_withdrawal_article.html and http://www.irs.gov/retirement/article/0,,id=162416,00.html. Good luck!
    0 Votes

  • 35x35
    Feb, 2009
    Laura
    Help please... My husband cashed out his 401k three weeks before he passed away of cancer. He was missing alot of work due to chemo/hospitalization and wanted to pay off Heloc loan on our home,medical bills and enough to pay mortuary and leave me some to get by for a year. I just don't know if I will get hit with paying his 10% early withdrawal penalty as he was only 54 years old. I know it was a hardship withdrawal. He passed away at the beginning of the year 2008 so I doubt he had the required amount (medical bills payout) to meet the medical hardship requirements. Thank you for any advice.
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    If he withdraws before the age of 59.5, you are looking at a 10% penalty in addition to the regular income taxes. This penalty will be deducted at the time of the withdrawal. Whatever amount you withdraw, you will get a 1099 form your plan administrator to include that amount in your income for the year 2009 and will pay income taxes as per your bracket.
    0 Votes

  • 35x35
    Feb, 2009
    Joey
    My husband has worked for a company for 16 years, but has got laid off from the job he was doing and given another job within the same company, well his pay had went from $1,600 a week to $260 a week. He can't make it on this and is tring to find another job but in the mean time the bills pile up. He has $213,000 in 401k and is looking to pull it out to pay the bills. What kind of penalties is he looking at? And will he be taxed again 2010 tax year on the same money.
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    You should have transfered the money straight from your 401K account to the ROTH IRA account, I am really not sure that doing so now will have any benefits.
    0 Votes

  • 35x35
    Feb, 2009
    Doug
    I cashed out $2280 from my previous employer 401k. Taxes deducted were $456. Net $1824. If I open a ROTH IRA with this money, are there any tax benefits being as it is such a small amount?
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    That will not make a difference, as long as you are withdrawing money before you are 59.5 years old, you will be penalized. There are only a few instances where you are allowed to withdraw based on harships, you can read more here: http://www.irs.gov/retirement/article/0,,id=162416,00.html
    0 Votes

  • 35x35
    Feb, 2009
    Paul
    Thanks for your fast reponse , its appreciated. One more question, if I take 3/4 of my 401K and roll the rest to IRA would I still be penalized? your assistance is always appreciated.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    Yes, you can definitely start to withdraw from your 401k account as you are well above the minimum required age of 59 1/2 to withdraw. I think your best option would be to withdraw money systematically over a period of time instead of taking it all out at once. You will need to talk to your plan administrator to figure out the details.
    0 Votes

  • 35x35
    Jan, 2009
    Yuriy
    I am 64 years old and have around 72,000$ in 401K from my former employer, where I worked 8 years. I lost my job in the end of the 2006. After that I had a couple short term projects. Right now by health condition I can not work and applied for early retirement pension. But it is a small amount and I would like to add each month some amount (1,000$) from 401K plan. How I can do it? Thanks a lot. Yuriy
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    The 10% penalty only applies if you withdraw before the age of 59.5, the rest will be federal taxes as per your income tax bracket.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    Yes, you will get a 1099. As far as the tax bracket is concerned, it will depend on the total amount you withdraw in a particular year. Only if the withdrawal puts your income in the bracket for which you are liable to pay 20% will you be paying that much. It depends on your total income for that year (inclusive of the 401k withdrawal).
    0 Votes

  • 35x35
    Jan, 2009
    Paul
    Would 30% be taken away at the cash-out or 10% penalty fee and the other 20% IRS tax during the TAX return filling.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    If they have deducted the tax already, then they will send you a 1099 stating the same. All you have to do is make sure that you declare that income along with your other income. If you have doubts then you will need to clarify with tax professional.
    0 Votes

  • 35x35
    Jan, 2009
    KAREN
    I cashed in a 401k for approx 5,400 they took out 1,000 for income tax now what will happen when I file taxes this year. I have not been sent any more form saying I have to claim anything Confused
    0 Votes

  • 35x35
    Jan, 2009
    Ronald
    When I cash out a 401K, if my yearly income is low enough will I be able to get back some or all of the 20% that is automatically withheld for taxes? At the end of the year will I receive a 1099 form showing the amount withheld for tax?
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    Withdrawals from an IRA if you are under 59 1/2 are subject to a 10 % early withdrawal penalty. Regardless of your age, distributions for an IRA are subject to income taxes in the year you make the withdrawal. Distributions governed by various IRS rules and regulations primarily relating to your age at the time of withdrawal. Penalty-free IRA distributions are optional starting at age 59 1/2 but are mandatory once you reach 70 1/2.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    Yes, you can withdraw without any additional penalties.
    0 Votes

  • 35x35
    Jan, 2009
    Sarah
    I have a traditional IRA. Can I completely cash it out without paying a penalty? I've had the IRA for over 5 years.
    0 Votes

  • 35x35
    Jan, 2009
    Ronald
    I am 65 years old and turning 66 in June 2009. I have an income from Social Security and a separate taxed State pension. I have an $8000 fully vested 401K with my former company which I want to cash out. Am I right in assuming that I will not have any penalties other than I will have to claim the $8000 on my 2009 income tax return?
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    NO, please do not do that. You will lose a lot of money in penalties. You have a long way to go before you retire and this is just not a good idea. You have to bite the bullet and manage with what you have. Your main goal now should be to eliminate the credit card debt. There are many programs that can help you do this, but each one of them has some effect or the other, on your credit. So start researching your options. If you have a good rate on your mortgage and know that you will not need to refinance, then you can opt for a debt settlement program. It seems that you can still afford your monthly payments, so this just might be the option for you. I strongly suggest that you get a free consultation from Freedom Debt Relief, they will clearly break down the options for you and tell about the pros and cons of each. You can call them at 18005447211 or visit their website at http://www.freedomdebtrelief.com. In the worst case scenario, you can still take a loan against your 401k instead of making an early withdrawal. All the best.
    0 Votes

  • 35x35
    Jan, 2009
    Jay
    I am unemployed and the job market as you know, well, sucks! My wife's hours were cut and we are both looking for anything to survive. Our youngest child is a freshman in college. We are current on all of our bills, including our mortgage but have incurred about $65K in credit card debt trying to keep our heads above water. We have available to us, about another $70K in available credit on credit cards if we need it but I don't want to go any deeper in debt. I have $115K in a 401K and don't see any other options but to cash it out to pay down some debt and have enough for about 4 to 6 months of monthly expenses and hopefully will have a job(s) by then. I am 48 and my wife is 44. The 401K is the only retirement account we have. Is cashing out the 401K the best choice at this point?
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    Whatever amount you withdraw in a particular year, it will be added on to your income for that year. So if you were to withdraw all $105000 this year, you total income for the year would be $130000 and you would be taxed according to that bracket. The 10% penalty is in addition to this taxation.
    0 Votes

    • 35x35
      Jul, 2011
      Nicole
      I am super confused. My divorce agreement stipulates that I get 50% of my husband's 401K as a cash payment, not roll over. Who gets hit with the tax (I'm guessing I do) and when does it get deducted? His tax rate is significantly higher than mine so I am hoping that it is taxed at my rate. And since it is a domestic order do we (he or I, or both of us) get hit with 10% as well? Like I said .. super confused! Thanks so much for your help, even if you can't really help. :-)
      0 Votes

    • 35x35
      Jul, 2011
      Bill
      Nicole, did you use a lawyer in your divorce? I think the key is the exact wording of your divorce decree. Consult with the attorney. If you did not use an attorney, find one to speak with.

      As to the tax implications, there should be only one 10% penalty. You should speak with a tax specialist to know how much you will owe in taxes and to discuss rolling over the disbursement to avoid taxation.
      0 Votes

  • 35x35
    Jan, 2009
    Gary
    I'm going through a divorce and with that I'm getting half of my wife's 401k, which is 105.000. If I cash out the whole amount i'm guessing the 10% for penalties would come out. Correct? Then I would have at the end of the year income tax 1099 sent to me. Any idea how much taxes would be at the end of the year? i currently make only 25.000 a year. Thanks much...Gary
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    No, you will not be charged a penalty as you are receiving this money as your late husband's beneficiary.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    If you withdraw from your 401K before the age of 59 1/2, you will incur a 10% penalty on top of the regular applicable income taxes. The amount that you receive will be substantially less than the $15300 you have in your account. It will be much better if you take a loan against your 401K. See your plan administrator for details.
    0 Votes

  • 35x35
    Jan, 2009
    lisa
    My husband died some years ago , now it seems I have to withdraw money from his 401k in order to live, will there be any penalties involved given the fact that I am a widow and also his beneficiary. Thank You
    0 Votes

  • 35x35
    Jan, 2009
    Paul
    I have a $15,300 in a 401k and have a loan I want to pay off to free up some cash. The loan is $13,900, I also have another retirement that I get a monthly check from a previous job. Should I take the 401k money to pay this off or take a 401k loan to pay it off?
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    The loan will be deducted first, and the balance amount will be taxed, and you will also pay the 10% penalty on the balance. Please make sure of the same through your plan administrator.
    0 Votes

  • 35x35
    Jan, 2009
    eric
    hey thanks for the info.so you are saying that i would get 75% of my money back? so on the hole 5500 you are saying im going to pay 1050 in taxs? or are you sayin that the 2000$ loan wont be taxed the same as the rest of the money in the 401 k account? i expect to make around 8000 and the money out of the 401k in 2009.sorry if i am asking to many ?s
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    You will receive $3500 less the applicable income tax and the 10% early withdrawal penalty. Assuming you fall under the 20% tax bracket you might end up getting $2450 ($3500 less $1050 in taxes and penalties).
    0 Votes

  • 35x35
    Jan, 2009
    eric
    ok so the compony i worked for has laid me off and now it has been 6 months they want to cash out my 401k plan in 2 weeks now i want the money whatever money ill end up with.there is currently around $5500 in the account and i have a loan of 2000 what if anything could i expect to recive out of this account?on top of my $2000 loan
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    The penalty will be an additional 10% on top of the normal income tax rates you will pay as per as whichever tax bracket you fall under, after the withdrawal.
    0 Votes

  • 35x35
    Jan, 2009
    Syed
    I am working on TN visa and it will expire this year in April and I have to leave the country because my employer is not extending it.I have around $7000 in my 401K account and I would like to take it out before I leave the country. Could you please tell me how much penalty I have to pay even though I have to leave the country (not my choice). Also how long it will take to get the money.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    If you are fully aware of the penalties, then yes, the money is yours to withdraw. i don't know why your plan adminstrator would say that, unless they have an internal policy that does not allow you to withdraw. Keep insisting.
    0 Votes

  • 35x35
    Jan, 2009
    michelle
    I am needing to cash out my 401k in order to refinance an ARM that is set to expire on my primary residence; my home's value had plummeted, plus we're not sure we can get a "nothing down" mortgage any more, so we have to come up with a pretty large chunk of money quickly. When I ask my plan administrator, I am met with hesitation and "no, you can't do that"... Is that even OK for him to say?? Isn't this money legally MINE to do with whatever I need to (and yes, I know full well about the penalties and taxes). Should I just keep insisting? Don't they HAVE to give it to me if I ask for it? Thanks!!
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    You would have the proceeds from the loan to make the payments and meet your short-term needs. You can always take money out of your 401k, it is just VERY expensive capital since it will heavily taxed. Borrowing at a low interest rate is a cheaper capital source, but you should certainly make the best decision for your own situation.
    0 Votes

  • 35x35
    Jan, 2009
    Average
    You keep mentioning that if it's a tough situation, it's better to take a loan out on my 401k rather than a withdrawal. Am I missing something? I would be making a withdrawal because I'm in desperate need of money. If I take a loan out, I would be making payments using money I don't have. Or do I use part of the loan proceeds to start making payments to try to buy myself some more time?
    0 Votes

  • 35x35
    Nov, 2008
    Bill
    Whatever amount you withdraw, will be added to the total of your yearly household income. You will be charged whatever the rate applicable for the total amount and then the 10% on top. In most cases the tax and penalties are already factored in when you get your check. You should double check with your plan administrator.
    0 Votes

  • 35x35
    Nov, 2008
    Gabrielle
    At 35, I have about 27,000 in my 401k. I was deciding to surrender or withdraw and the amount computed is about 14,000. Does this mean 20% federal tax plus 10% penalty was already taken out? My husband makes about 70 to 80 thousand a year and I make about 60 thousand/year. Filing jointly, what is the effect on our income tax return?
    0 Votes

  • 35x35
    Oct, 2008
    Bill
    You can withdraw from your 401K account once you turn 59 1/2, without any penalty. You will pay whatever regular income taxes that will be charged. For example, if you made $40000 in a particular year and withdrew $20000 that year, your total income would be $60000 for tax purposes, and you would pay the regular rate of taxes on that amount.
    0 Votes

  • 35x35
    Oct, 2008
    jasada
    when i turn 59 1/2 can i withdrawal allof my 401k and will i have to pay a penalty i am retired aswell and do i have to pay taxes on it?
    0 Votes

  • 35x35
    Sep, 2008
    Bill
    Withdrawing from an IRA is slightly complicated. You are right with regard to the 10% penalty assessment, but there are other rules as well. Please read more here.
    0 Votes

  • 35x35
    Sep, 2008
    John
    I have a question for you guys. I'm 21 years old and i want to open a roth IRA. But i want to withdraw the money at 42. So say i had 100,000 in it. after the 10% and taxes would 60,000 be a safe bet on what i would get. And is it possible to open up another roth IRA after you close one?
    1 Votes

  • 35x35
    Sep, 2008
    Bill
    It is a bad idea, considering you will pay 10% in penalties and this is over and above the regular taxes that you would pay. But, given that you are still young, I guess you can make up for it by contributing more in the future.
    0 Votes

  • 35x35
    Sep, 2008
    Brianna
    no the $2000 loan is not tied in with my 401k. I basically just need to know if it is not an incredibly bad idea to cash out my 401k.
    0 Votes

  • 35x35
    Sep, 2008
    Bill
    I don't quite understand your question. If you mean that this loan for $2000 was given against the savings in your 401k account, then you will need to find out from your plan administrator as to what the rules are about the loan re-payment if you were to switch companies. Usually, when you join a new place of work, the 401k account from your previous employer can be transfered over to your new employer (assuming that they have a 401k plan in place). But given that you have this loan outstanding, they might insist that you pay it off before they transfer the account, that in turn would mean that $2000 would be treated as an early withdrawal and would be subject to a 10% penalty on top of your regular taxes that you would have to pay for a withdrawal. Hope this helps.
    0 Votes

  • 35x35
    Sep, 2008
    Bill
    I am not aware of any deductions for paying off the home loan early. You should know that the interest that is charged for you home loan is deductible to a certain extent. I suggest that you speak with a tax professional to know your best option in this regard.
    0 Votes

  • 35x35
    Sep, 2008
    Paula
    My Husband has a retirement that he has cashed out and bought a BMW car and paid for it in cash for approximately 29,000.00 before he received this money taxes were already taken out from the employer..also he should be receiving another retirement for approximately 150,000.00 after taxes are taken out from the employer, he is wanting to pay off the house we live in which is about 76,000.00 if he does this is their any irs deductions for paying off a house loan early? I understand that the amount he spends from the esop plan is considered income and will be taxed this way. I welcome any input to this situation. thanks...
    0 Votes

  • 35x35
    Sep, 2008
    Brianna
    I am currently at a company that graciously gave me a $2000 loan to put towards me vehicle that we sell aftermarket parts for. Unfortunately my 2nd vehicle i was using to save on gas broke down and now i have a gas guzzler taking about $150 more out of a paycheck than i can afford. I have to pay back that $2000 loan before I leave the company, and I need out of here now. I am 21 and have only had this 401k for less than a year. Does this seem ok for this small amount and at my "younger" age? I cannot afford $150 a week in gas.
    0 Votes

  • 35x35
    Sep, 2008
    Bill
    You are correct, but I would still make sure with your plan administrator beforehand.
    0 Votes

  • 35x35
    Sep, 2008
    charlie
    i am planning to cash out my 401K that has 35 grand in it. I owe 10 grand from it. I know about the 10% penalty, plus 20% witholding tax (witholding means that I may or may not pay more income tax later depending on my tax bracket, right?) So with this 30% total deduction I am looking at getting my hands on roughly $17, 500 -- am I correct? (They deduct my outstanding loan first, then the tax and penalty is applied ONLY to what has remained, right?) And from then on I owe NO more taxes or penalties related to the 401K -- correct? (Unless of course the 20% witholding was not enough?) I just need to understand this clearly. Thanks
    1 Votes

  • 35x35
    Aug, 2008
    Bill
    Based on what you state, you might qualify for a hardship based withdrawal, wherein the penalties do not apply. You should speak to you 401k plan adminstrator for the details.
    0 Votes

  • 35x35
    Aug, 2008
    Bill
    It is best to consult with a tax attorney for questions such as these. Only they will be able to give you an estimate of your tax liabilities and also advice you on the best course of action. Make sure that you speak to your plan administrator as well.
    0 Votes

  • 35x35
    Aug, 2008
    Kristina
    Thanks for your response. I have exactly 13,585.00 in there now and loan is 1680.00. The penalty is 30 % total per my company. The federal will withdraw 20% and 10 % from company before I get my check. Will this still hurt me at tax time? And what do you estimate me to get in my return? Do you think I should cash it out? Thanks
    0 Votes

  • 35x35
    Aug, 2008
    Richard
    I am 54 years old and my wife had open heart sugery in Jan. after 6 weeks out of work she was layoff, then the day of her sugery the news told me that my plant is closing (after 24 years) in Oct. 08 and moving to China, closeing date has been move to Aug.15 08 and now we are both out of a job and a house going into forcloser next month, I have $33,230 in my 401k from that job, would I have to pay the 10% penalty or what could I do.
    3 Votes

  • 35x35
    Aug, 2008
    nithin
    You will have to pay the loan back for sure. That would leave $11400 in the account. When you cash out, this amount will be added on to your yearly income and you will pay the taxes as per the tax bracket you fall under. You will also pay a 10% early withdrawal penalty.
    1 Votes

  • 35x35
    Aug, 2008
    Kristina
    I am 24 years old. I am leaving my job to take a better offer. I have a family of 4 two kids and me and my huband. We live check to check with bills and so forth. Right now I have 13,000.00 in my 401k and I owe a loan of 1600.00 to the 401k. How much will I get and will I owe more at the end of the year. I dont care to get the penalty taken out before I recieve the money. But, I do not want my taxes to get messed up. I want to cash it out to pay off my car loan. That 400 extra a month makes us struggle. Please give me some advice. thanks
    0 Votes

  • 35x35
    Aug, 2008
    Nithin
    If you cash out before the age of 59 1/2, you are subject to the penalty. The only exceptions to this are hardship based withdrawals, but the IRS has a stringent guidelines as to what qualifies as a hardship. You can read more on the IRS's website at: http://www.irs.gov/retirement/article/0,,id=162416,00.html
    1 Votes

  • 35x35
    Aug, 2008
    howard
    my job is being outsourced to china ,i have a 401(k) and i am 41years old . if i cash out will i still have to pay a penlty ?
    0 Votes

  • 35x35
    Jun, 2008
    COR.
    i think is not fair for us to pay any kind of penalties on our own money that we contribute into our 401k yes tax it but penalties no.is easy for them to take out.so it should be easy for them to give us back our money.no matter what the age or situation we in. from Cor.
    0 Votes

  • 35x35
    Jun, 2008
    Bill
    The best person to talk to would be your current plan administrator. There simply isn't enough information for me to make a suggestion for you. I don't know as to why K-Mart will not allow you to withdraw smaller amounts each year. Usually, people rollover their 401K into an IRA to continue with the tax benefits but the contributions are capped to a certain amount. I also suggest that you consult with certified financial planner to decide on the course of your action. This is your hard earned money you need to be really careful with what you do at this point.
    0 Votes

  • 35x35
    Jan, 2008
    Linda
    I cashed out on my 401k plan at the age of 51. The total amount was 9258.57. They took out 1850.51. In October I quit my job so my total income for the year is 16,500. Will I be taxed on the 9258.57 plus 16,500 added together or will I be taxed 10% ON THE 9258.57 COME TAX TIME
    0 Votes

    • 35x35
      Apr, 2011
      Kerrie
      You will be taxed on the full amount. There is the 20% and the 10% penalty. After those are taken out what you end up with, will be added to your YTD earnings.. So if you made 30k and only got 10k back from your earlt withdraw you will be taxed on the 40k. At least from what i've been reading thats what you are looking at.
      1 Votes

  • 35x35
    Jan, 2008
    Nate
    All tax liabilities with respect to your 401k withdrawal should have been taken care of when you cashed out your plan. You will pay taxes only on your income for the particular year.
    0 Votes

  • 35x35
    May, 2008
    serena
    I am a single mother of a 13yr old boy. I am $10,000 in debt and I have a 403b in the amount of $11,000 that I want to cash out. I was wondering would it be a good idea to either get a $5,000 loan and pay off major high in debt or just cash out.
    0 Votes

  • 35x35
    May, 2008
    Nithin
    A 403(b) plan is a tax-advantaged retirement savings plan available for public education organizations, some non-profit employers, and self-employed ministers in the United States. It has tax treatment similar to a 401(k) plan, the only important differences for the participant are some additional ways that they can withdraw employer money, not salary-deferral money, before the typical 59 1/2 age restriction, but only if the plan is funded with annuities and not mutual funds. If you are below the age of 59 1/2 you might incur additional penalties if you just withdraw. A loan is always a better proposition as there are no taxes to be paid and no penalties are involved. Your plan administrator should be able to explain it to you in detail.
    0 Votes

  • 35x35
    Nov, 2007
    Sarah
    I am 57 years old and have 9000.00 in a 401k from a former employer (vested). I have lost my job and need this money. I know it is not a good idea, but the amount is not that large. I do own my home and can probably get an equity loan. But with no job, what good would that be? I want to pay off my vehicle and use the remaining to tide me over until I can find employment. I have only 2000.00 in a savings account. Thanks, Sarah
    19 Votes

  • 35x35
    Nov, 2007
    bradford
    NOOOOOO! Don't do it Sarah. You are very close to confirming retirement limits, and then you can take out the value of your 401(k) instead of only half... due to the tax liability of early withdrawal. You should consider a 401k loan, or just use the HELOC to get you by. Delayed gratification, in your case, can save you a lot of money. Hang in there.
    0 Votes

  • 35x35
    Dec, 2007
    Nitin
    If you have already cashed out the plan then you have paid the income tax associated with that transaction. Your tax liability will be towards the balance of your income.
    1 Votes

  • 35x35
    Dec, 2007
    Jim
    I am 38 years old. I left my job in May of this year. I know I shouldn't have, but I cashed out my 401k account worth 37,000. My employer held onto the 20% tax and 10% penalty, leaving me with just over $28,000. My year to date income when I left that job was 18,000. I took a new job and my salary for the remainder of the year is $32,000, So my total income, including the 401k was $88,000. I am married, own a home and have 3 kids. My wife does not work. I estimate that my personal exemptions will total roughly $20,000. This includes mortgage interest and local taxes and Child tax credits. Taxes paid YTD total roughly $4,000 Federal + the $7,400 from the 401K screwup. Am I looking at a large tax bill, or have I taken care of the extra taxes when I withdrew from my 401K?
    39 Votes

  • 35x35
    Dec, 2007
    Nithin
    Thank you for visiting the Bills.com blog. Hardship withdrawals are subject to income tax and, if you are not at least 59½ years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back. Income taxes will be deducted when you cash out your plan. A better options (if possible) would be to borrow against your plan instead of cashing out early. Plan loans are not subject to taxes or penalties, and you can continue to contribute to the plan while you repay the loan. (Some plans will even require you to exhaust your possibilities for a loan before taking a hardship withdrawal.) This way you will be able to avaiod the stiff penalty and then cash the plan once you retire. You should talk to your plan administrator to find out what your loan options are.
    0 Votes

    • 35x35
      Jul, 2011
      Douglas
      Another option is to work with the IRS yourself or hire one of the people who advertise on TV or the radio. I have spent a lot of time in IRS offices and they are a lot more malleable than in previous years. Good Luck and don't be afraid of the IRS.
      0 Votes

  • 35x35
    Dec, 2007
    Nuno
    I am in toruble with the IRS and need to cash out my 401K to stay free. I have about $200,000.00 and I am 50 years old. How much will I get out, when are the taxes paid, at the withrow or at tax time?
    29 Votes

  • 35x35
    Jan, 2008
    Nathaniel
    Please do not consider this as Tax advice, as far as I know, all taxes due will be paid at the time of cash out. Please consult a certified tax attorney to make sure.
    0 Votes

  • 35x35
    Jan, 2008
    Jay
    I am looking to cash out my 401k from my former employer. It is not much but after taxes, roughly 10,000 will be distributed to me. I understand the 20% and 10% penalties but am concerned about additional taxes if any apply. I know I will have to claim the cash out on my taxes but what I would like to know is...Will additional taxes apply when I file taxes next year for 2008 earnings?
    20 Votes

  • 35x35
    Mar, 2008
    sue
    We make about 90-100,000 a year. We take home 4900 a month and our bills our 5600 a month. We have 25,000 in student loans at 4%, 15,000 credit cards at 7%, and 10,000 at 26% apr. We also owe the IRS 15,000 because my Husband did not pay enough estate tax when his parents died. We have about 120,000 in my husbands 401K. Our house payment is 1799 with taxes, and we send our son to a private school because of his adhd. He is 50 and I am 42. Should we borrow against our 401K, sell our home - we have about 70,000 in equity or send our son back to public school.
    0 Votes

  • 35x35
    Mar, 2008
    jessica
    i have a question.I am 59 1/2 and would like to buy a house for the first time. If I have $240,000 in my 401k how much in income taxed will I have to pay? and other taxes?
    29 Votes

  • 35x35
    Mar, 2008
    Newton
    I always recommend people to refrain from touching their retirement income. I would suggest you do a comparison. See how much a home equity loan will cost you when compared to the loan against your 401k savings. If they are about the same interest rates, then go for a home equity loan. Remember that some 401k plans will not allow you to contribute till you repay the loan, so that might be an important factor to consider. If you don't mind selling your home, then that would be the best option, considering it would pay back most of your debts (including the money you owe the IRS, trust me you don't want them to start garnishing your wages). I cannot comment on your son's schooling because that is a call that only you can take.
    0 Votes

  • 35x35
    Mar, 2008
    Jason
    Withdrawals made after the age of 59 1/2 are not subject to any penalties. You will pay income taxes at the regular rate of whichever bracket you fall under.
    0 Votes

  • 35x35
    Apr, 2008
    Bill
    As you are above 59 1/2 years in age, there is no penalty if you withdraw all at one time. The amount you withdraw, will be added to your yearly income and you will be taxed at the regular rate for the level of income the bracket you fall under. Please talk to your plan administrator for more details on the modalities of the withdrawal.
    2 Votes

  • 35x35
    Apr, 2008
    Sheldon
    Hi, I'm 75yrs old and have an 401k for $9000.00 in my bank account, My question is what is the penalty if I with draw it all at one time. Please advise . Thank You Sheldon Frasier
    0 Votes

  • 35x35
    Jun, 2008
    carol
    We have a 401k that was switched over to sears when I left k-mart. I think I have to take it all out and they will not allow me to take small amoumts out each year. My husband & I are both 66 and want to be able to take 5,000 each year. What is a good plan to roll over my 401k into? We have about 165,000 in it now.
    0 Votes

  • 35x35
    Apr, 2008
    Bill
    Can you not take a loan against it instead of cashing out?
    4 Votes

  • 35x35
    Apr, 2008
    Mike
    I really want to cash out the 403b (est 20,000) I need the cash now. I have pension and healthcare covered. Only 37. Crazy?
    0 Votes

  • 35x35
    Apr, 2008
    Bill
    Whenever you make a withdrawal from your 401K plan (known as a "distribution"), you will receive a Form 1099-R reporting the distribution from the 401(k) pension plan by January 31 of the year following the year of distribution. Form 1099-R is an Internal Revenue Service (IRS) form with which an individual reports his or her distributions from annuities. The following are some of the items included on the form: the gross distribution paid during the given tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld, the contributions made to the investment or premiums paid, and a code that represents the type of distributions made to the holder of the plan. Your will receive this form from the plan custodian, who sends the form to the owner of a plan if he or she has made distributions of $10 or more from the plan in a given year. Your will then have to attach a copy of Form 1099-R to your tax returns. Whether this will put you in a higher tax bracket or not is a question only a tax professional can will be able to answer after he has examined all of your information (such as your individual W2 forms), but you will have to declare this income on your tax returns for the year that you made the withdrawal in. I suggest that you consult with a qualified tax professional to find out more about the implications of this withdrawal.
    0 Votes

  • 35x35
    Apr, 2008
    tyler
    i recently changed jobs, at my old employer i have about 16700 in a 401k. i want to cash out. but am concerned about next years income tax. our net at year end is about 57k, last year we got about 4 thousand back in taxes which we use for property taxes. if i cash out the 401 will the taxes paid now cover everything? or next years income taxes going to be not as good because of the extra money?
    0 Votes

  • 35x35
    Apr, 2008
    Bill
    Early withdrawal from your 401k will result in additional penalties from the IRS. Your husband should talk to his plan administrator at work to figure out what the exact taxes will be and how much the net check will be. Moreover, you state that there is an existing loan on the 401k. If that is the case, that loan will be paid off first and then whatever amount remains will be taxed according to his regular rate of income tax plus the additional 10% penalty for early withdrawal. I always recommend that retirement income should be left alone as much as possible. Have you looked at other sources, maybe a home equity loan?
    0 Votes

  • 35x35
    Apr, 2008
    Christina
    My husband is losing his manufacturing job, the company is sending all their work to China. He has approx. 32,000 in his 401K. We have a loan on the 401k, an auto loan & our morgage. The govt. is paying for him to go to school because of the company moving out of the country, so he is going to school and his unemployment will be less than he is currently making. I want him to pay off the auto loan with his 401k so we won't have that payment while he is in school. What do you think? He is 39 I am 35 so we have a long time until retirement.
    9 Votes