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View Full Version : Considering withdrawing my 401K


Fayeneicy
Jul 10, 2008, 05:22 PM
I'm hoping someone can give me some advice regarding my 401K.

I'm considering withdrawing my entire 401K in order to clear up some debt. (Not the wisest decision, I know, but my options are slim).

I've taken a loan out on my 401K twice previously and repayments for the 401K are drawn automatically from my paycheck.

My employer also matches my contributions to the 401K so I'm wondering how this would effect me if I do withdraw my 401K. Can you also tell me how much I would be penalized for withdrawing my 401K?

Any advice would be greatly appreciated!

ebaines
Jul 11, 2008, 06:43 AM
First - are you sure that your employer allows in-service withdrawals? Most do not. If not, this discussion is moot.

If you employer does allow in-service withdrawals, you need to understand what the vesting rules are for your plan. You need to know how much of the employer match (and its earnings) are available for withdrawal. You may find that only your contributions are available for an in-service withdrawal. Again, ask your HR department about this.

If you do make a withdrawal, you will pay a 10% penalty on the amount withdrawn (I assume you are under 59-1/2 years of age), plus income tax on the withdrawal - both federal and state/local if applicable where you live. They will withhold 20% from any distribution for taxes. When you do your taxes next April and figure the penalty you may very well end up owing more to Uncle Sam, so be sure not to spend it all so that you have the cash available.

ScottGem
Jul 11, 2008, 06:47 AM
Yes this is not advisable because you are essentiually throwing away money. The penalty, taxes and loss of revenue generally add up to a much greater cost then the interest on your debts.