thanks

[ironxman99]

thanks

 

[j00fek]

6. Can I withdraw money from my account while I am still working?
Some plans offer loans allowing you to borrow money from your 401(k) account, but you have to pay yourself back with interest. If you fail to pay back the loan it is treated as a withdrawal and the outstanding loan balance will be subject to current income taxes as well as a 10% early withdraw penalty. If your plan doesn't offer loans, you may be able to qualify for a severe financial hardship withdrawal if no other resources are available to you. According to the IRS a hardship withdrawal includes the following:

* down payment of primary residence
* college tuition for you or your dependents
* unreimbursed medical expenses
* prevent eviction or foreclosure from your home

Some companies are more lenient than others. Because of the complexity surrounding this issue and varying plan designs, you need to reference your plan document or ask your Human Resources representative for further information regarding plan withdrawals

 

[Savij]

 

[FoBoT]

this is a bad idea

you pay normal income tax PLUS an extra 10% penalty

you should consider credit cards or other things before this

 

[MrChad]

If you have money saved up, why would you touch your 401(k)? That doesn't make any sense.

 

[Queasy]

You'd be better off taking a loan or something else. Once you withdrawal that money and take the withdrawal penalty plus the income tax hit, you'll be lucky to keep half.

 

[DaShen]

Do you have any money in a Roth IRA? That is better to pull from because you can pull the initial investment with no penalties.

 

[DaShen]

Originally posted by: Queasy
You'd be better off taking a loan or something else. Once you withdrawal that money and take the withdrawal penalty plus the income tax hit, you'll be lucky to keep half.

QFT. It is a bit more than half though, but yeah it is pretty bad.

Use FAFSA. You will find you will find that you might be able to get it subsidized too while in school. That is always a plus.

 

[ironxman99]

thanks

 

[DaveSimmons]

Not only do you pay a 10% penalty plus full income taxes in your highest tax bracket or above, but also you give up tax-sheltered investment that grows tax-deffered.

So $1,200 in taxes plus losing a tax shelter.

A much better idea is to roll over the 401k into a rollover (traditional) IRA at a brokerage.

Edit: it's trad not Roth since it was pre-tax money. any brokerage and most mutual fund companies can explain how to handle the roll over so you don't pay taxes.

$4K is a little low though so be careful about account maintenance fees for balances below $5K.

 

[dirtboy]

Contact your HR, 401(k) provider and/or 401(k) TPA for information on your specific plan, any applicable penalties for early withdrawal and any tax implications. They will be able to help you far more than anyone here.

 

[Queasy]

Originally posted by: ironxman99
yikes, i didn't know it was 50%+. thought it would be more like 30% max. anyone know how i can get the exact figure?

just to reiterate, but i'm quitting my job. i have plenty saved up so i can use that for the time being.

where can i roll my 401k to? can i roll it into a roth ira? i know nothing about this stuff.

Go check out Fidelity.com.

 

[ironxman99]

man this is confusing, but thanks for the replies.

 

[skimple]

No one can tell you the exact figure unless they know your tax rate. You will pay the minimum 10% penalty + income tax according to your tax bracket. We can;t know this without understanding your deductions, which I don't recommend posting online.

Assuming your taxable salary is $40K (after any pre-tax dedcutions such as 401k, medical costs, etc), and you only take the standard deductions (do not itemize) and your are single with no kids, then your deductions are $8200, which puts your taxable income at $31,800. This means you pay federal taxes of $4261. If you add $4K to your taxable income for the 401k distribution, your taxes jump to $5621 + $400 in penalties. This means your taxes increase $1760, or 44% of your 401k.

And this does not include state taxes and penalities.

There are three ways that the, money can be withdrawn:
1 - Your 401k provider cuts you a check for the entire amount, and then issues you a 1099 at tax time indicating how much you received in income. (very uncommon)
2 - Your 401k provider deducts the taxes upfront, which are usually taxed as "special compensation" which is usually a much higher tax rate than what you are actually paying. You will get less money upfront, but will likely get some back when you file your taxes.
3 - Your 401k provider transfers the money directly to another tax-deferred plan of your choice. You never see it. No taxes are withheld.

You have to talk to your 401k provider to see which options they offer.

I think this is a very bad idea.

 

[MrChad]

Originally posted by: ironxman99
man this is confusing, but thanks for the replies.

Go buy this book.