We both lost our jobs and are now 50yrs old with two children merging into college, with that expense plus our concerns of losing our home we have decided after much thought to cash out our 401k-with the hopes of having enough to pay off our mortgage of 111,000.
If we do this and pay the 10% and the 20% have we satisfied the governments greed-Or will be expected to add this money to our annual income and pay interest on it again?
Also, we have two existing 401k Loans the Bal on one is 5,000 and the other 19,000, we are considering letting these go into default-Can we do this while cashing out 401k or will they force us to deduct these amounts from the Balance prior to closing it out?
How much would we receive if for example we had 160,000 left after this crash, and the two above mentioned loans-if we had to deduct them-otherwise we would opt not to-minus penalities and taxes- What would we net-would it be enough to pay off mortgage?
Looking for your response,
Thank you

First, you should avoid any and all taxable events. And, for the record, I find the government's involvement (penalties) in this matter despicable.

But, yes, "they" will deduct the outstanding loans first. They should catch them before you cash out. You don't want to be caught behind that eight-ball if they don't, do you?

It's not like you're a foreign country seeking aid. However, if you were...

First its not a good idea to piggyback your question on someone else's. This can lead to confusion. You should start a new thread. So I've moved your question to its own thread.

Second, I have to take exception to this remark; "have we satisfied the governments greed" Money invested in a 401K is not taxed until time of withdrawal. Had you not conntributed to a 401K you would have oaid more in taxes over the years.

The 20% withholding is just like the withholding from your salary. Its an advance against your tax liabilty not a set amount.

If there are outstanding loans when you cash out, that amount will be added to your taxable disitribution. Whicg, will in turn be added to your income for the year to determine your actual tax liability.

So, ifyour account balances are $160K Not including laons, you have to add the outstanding loans which would total $184K.Taking 20% would net you about $127K. Od that $18K would go towards the penalty next April. That already lowers your net to $109K. But a taxable distrbution of $184K is likely to involve a tax greater than the 20% withholdng.

I would only touvh this money as a last resort.

And, for the record, I find the government's involvement (penalties) in this matter despicable.

But, yes, "they" will deduct the outstanding loans first. They should catch them before you cash out. .

What is so despicable? The terms of a 401K were known going in. The govt was giving a tax shleter. They were allowing you to save money pre tax. If tHey allow people to take their retirement savings now, won't that just create a burden when they do retire?

Whether they deduct the loans depends on whether the balance quoted includes the loan accounts. If it does then they will be deducted. If it doesn't then the loan amounts will be added to te taxable income.

I don't have a problem so much with being taxed. That is going to happen. I don't like the idea of the additional penalty should someone suddenly need to utilize their own monies. Times are tough and the additional burden doesn't seem fair.