I am currently working for a company for 19 years. I have $81,000 total in my 401k
with a $35,000 loan against it. The loan was used for a business venture into real estate.

This business venture is starting to grow and I am looking to leave my company.

When and how much tax will I pay if I pull all the money out in January of 08?

Thanks

If you take a full distribution from the plan in January, then 20% will be withheld to be used towards your tax liability for 2008. When you file your 2008 taxes an additional 10% will be due as well as having the full value of the distribution added to your taxable income for the year.

When you leave your job the loan will immediately become callable. Assuming that you don't pay it back, then you will have to pay the 10% penalty and income tax on the entire $81K. So, assuming that you have $46K in your 401(k) left to distribute (that's $81K minus the $35K you already have), then you will owe $8,100 in penalties plus income tax on $81K. Assuming you are in the 20% bracket, and since you don't tell us what state you live in I will assume a 6% state tax rate, so you will net $46K - .26*$81 - .1*81K = $16.8K.

Clearly this is a very expensive way to get $16.8K. Unless you absolutely need this money you are better off either leaving the 401(k) where it is or rolling it to an IRA. Have you considered taking out a home equity line of credit to fund your business? You'd be much better off that way, given the tax break you get with a HELOC, as opposed to the tax penalty you pay by withdrawing your 401(k).

Ebaines raises excellent points.

I have nothing to add.

How old are you when you leave your job?

Age can be an issue. Based on your posting, I assumed you were less than 55 years of age.

If not, let us know!