Information and advice on 401(k) 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.

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 ?

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

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

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.

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.

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

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.

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.

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

You are correct, but I would still make sure with your plan administrator beforehand.

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...

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.

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.

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.

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.

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.

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?

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.

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?

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.

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?

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.

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?

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.

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!!

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.

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.

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.

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

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).

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

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.

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?

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

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.

No, you will not be charged a penalty as you are receiving this money as your late husband's beneficiary.

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

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.

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?

NO, please do not do that. You will loose 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.

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?

Yes, you can withdraw without any additional penalties.

I have a traditional IRA. Can I completely cash it out without paying a penalty? I've had the IRA for over 5 years.

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.

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?

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

Would 30% be taken away at the cash-out or 10% penalty fee and the other 20% IRS tax during the TAX return filling.

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).

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.

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.

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

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.

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.

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

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?

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.

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.

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.

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.

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!

I am almost 60 and need to take money out of a simple ira.can i do thiss if i am still employed?

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

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?

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.

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.

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.

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?

No, this is not a good idea, you will better off by rolling over the money into an IRA.

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

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.

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?

Yes, you will still be eligible for unemployment benefits. The fact that you withdrew from your 401k will not change anything.

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?

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.

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?

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.

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.

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.

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?

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

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.

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.

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?

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!

Yes, sometimes employers can specify rules for withdrawal.

You have to meet the hardship criteria set forth by the IRS to avoid the 10% penalty.

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.

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.

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?

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.

just got laid off, i owe $5,000 on a 401k loan, what will my penalty be if i dont pay it back.

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.

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.

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.

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.

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.

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?

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%.

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.

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.

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?

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.

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?

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/blog/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/

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?

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.

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.

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.

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.

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.

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?

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.

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.

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.

Just wondering if anyone knows what type of penalties there are for taking money from a 401k to pay off a student loan?

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?

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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...

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."

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.

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."

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.

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.

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.

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.

Will taking out my esop to pay off my house still be subject to the same penalties.

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.

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

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.

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?

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.

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?

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.

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

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.

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.

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.