401k penalties

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rpalmer103

Nov 21, 2006, 11:40 AM

I just lost my job after 32 years.... what is the best way to handle my 401k without losing everything to taxes/penalties..... i will need to withdraw some money to pay off some debt.... answer needed asap thanks

ScottGem

Nov 21, 2006, 12:30 PM

Don't. Anything you withdraw will be subject to taxes and a 10% penalty. Unless you are over 59 1/2. Otherwise rollover the distribution into an IRA and tough it out until then. If you were with a company for 32 years, you are probably close to the cutoff age.

walt17

Nov 22, 2006, 02:22 AM

I agree with Scott, an early withdrawal should be avoided if possible. However, if you find it is absolutely necessary there are two possible options.
1. Wait until January. You will still pay the penalty, but with no other income the taxes will be lower.
2. A bank might give you a loan using the 401K as collateral. Just be sure your future income will enable you to repay it or you will be paying interest in addition to the taxes and 10% penalty.