Information and advice on 401K cash out penalties - The Bills.com Blog

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

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.

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?

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.

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?

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.

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?

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.

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

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.

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?

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.

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.

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.

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.

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?

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?

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.

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?

Can you not take a loan against it instead of cashing out?

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

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.

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.

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.

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.

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.

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.