401 K question

[manicd]

If you were forced to withdraw all the money out of your 401K, what is the formula to find out how much money you would keep? Or, are there too many variables to really get an accurate figure? I'm guessing you have to factor in the early withdrawal penalty, and then have the taxes taken out. I tried researching this, but figured somebody on here would have to know, and yes, I'm lazy, so this is better.

Oh, at roughly $20,000, and I'm fully vested, what would I be looking at approximately. Thanks.

[DGreenistheBest]

Found this link, easier to point you to it than retype it. Hope it helps.

http://www.askmehelpdesk.com/taxes/401k-penalty-tax-question-7651.html

[HOF44]

As a ballpark figure I'd calculate 10% for the penalty and 20% for your regular tax rate (sub your rate if you know it.) That would give you a good idea. At this rate you would owe $6000 in taxes. (20% = 4000) (10% = 2000).

[manicd]

Thanks guys. I suck at finances. Haha. Guess so if I need to withdraw the 401K.

[zoony]

Thanks guys. I suck at finances. Haha. Guess so if I need to withdraw the 401K.

You'll be paying almost a 20 percent penalty.

You'd be better off getting a loan, and repaying it with interest.

[wshngtn1]

DON'T pull money out of your 401k!!!! Doing so should be your drop dead last option. Find another way out of your situation. You will thank me when you retire

[TMK9973]

See if you can do a loan.

MOST (but not all) allow a loan. Ussally works something like this (Yours may differ).

You can borrow 50% of your vested vaule, but you need to pay it back, with intrest. The intrest, however, is based on your rate of return and is put back in. So it's not really a big deal, becasue your paying it back to your self.

It's to off set the potential loss of what you would have earned.

[Larry]

BTW, I (and judging from the responses, everybody else in this thread) an assuming that by "withdraw", you mean "gimme the cash".

If you simply move it into another qualifying account, like an IRA, then there's no taxes, and maybe no penalty. (There may be other conditions that allow withdrawal for no penalty. I think Roth, for example, allows withdrawal for major medical bills, or to buy your first house.)

So "what do you want the money for" might be a real important answer.

[SkinsNut73]

I would look for another option if I were you. I did this one time. I hate having debt of any kind, so I was willing to pay the penalty when I took out $30K to do some home improvements.

...yea, not so bright...I know...but I have issues when it comes to debt

What I failed to realize was the money I withdrew was now considered income (duh...I know)...and come tax time it pushed me into a new bracket and I ended up having to pay the govt when I typically get back about $2K per year.

In the end, I lost 50% in the whole deal. Learned the lesson the hard way....but DON"T TAKE FROM YOUR 401K.

[manicd]

Damn, thanks again. I didn't realize how screwed you get when taking it out. And yes, I did mean "give me the cash."

[Larry]

Yeah, those words "substantial penalty for early withdrawal" aren't foolin.

And yeah, the big hit is that the money gets counted as income. You not only pay whatever penalty the bank imposes, but the IRS takes 10-35% depending on your marginal tax rate. (Meaning, "the rate they tax the last dollar you earned", not "the average rate they charged all of the dollars you earned".)

(Another, more subtle penalty: Once you take the money out, you can't put it back in and get the "tax free" label put back on it, because of annual contribution limits.)

If you can borrow the money, even if it costs you 25% interest, it'll likely be a better bet.

(Although, I did once withdraw the money from an IRA, early, without penalty. But that was because I was going back to college, and as an unemployed college student, I was in a 0% tax bracket.)