My wife will not listen to me! She feels that we need the money from a previous employers 401K plan to help with paying our bills since she doesn't make much money anymore. She only has about $8,000.00 in there and according to the way I see it, she will need to have 20% fed. Tax withheld, and 8% Oregon State tax withheld, plus the 10% early withdrawl penalty. According to my figures that leaves about $5000.00 net for her, or 38% deducted. Am I correct? or is it 28% total? (Tax + Penalty)

My wife will not listen to me! She feels that we need the money from a previous employers 401K plan to help with paying our bills since she doesn't make much money anymore. She only has about $8,000.00 in there and according to the way I see it, she will need to have 20% fed. tax withheld, and 8% Oregon State tax withheld, plus the 10% early withdrawl penalty. According to my figures that leaves about $5000.00 net for her, or 38% deducted. Am I correct?, or is it 28% total? (Tax + Penalty)
My personal advice based on my own experience is to not touch it with a ten foot pole. I dipped in to mine for the same reason and it has caused me nothing but problems with the IRS.

My wife will not listen to me! She feels that we need the money from a previous employers 401K plan to help with paying our bills since she doesn't make much money anymore. She only has about $8,000.00 in there and according to the way I see it, she will need to have 20% fed. tax withheld, and 8% Oregon State tax withheld, plus the 10% early withdrawl penalty. According to my figures that leaves about $5000.00 net for her, or 38% deducted. Am I correct?, or is it 28% total? (Tax + Penalty)
You are confusing the two. The 28 percent is the withholding and is just an estimate. Your actual tax may be more or less. You may receive a refund if you are not working. The penalty applies unless you meet one of the exemptions. The penalty is not always withheld. You should check with the manager of the retirement plan.

While the penalty may not be withheld, it will be due. Also the plan admin will only withhold federal taxes, not local ones. But the automatic 20% is just withholding. It doesn't represent your actual tax liability which depends on your income. The $8K will be added to your taxable income and might push you to a higher bracket.

Withdrawal of 401K money should be saved as a last resort.

While the penalty may not be withheld, it will be due. Also the plan admin will only withhold federal taxes, not local ones. But the automatic 20% is just withholding. It doesn't represent your actual tax liability which depends on your income. The $8K will be added to your taxable income and might push you to a higher bracket.

Withdrawal of 401K money should be saved as a last resort.

As far as it being a "last resort" I couldn't agree more, I just can't get it through my wife's head! She already had the papers sent to her and the way I understand it they are withholding 10% fed. Tax, 8% Oregon State tax, and it says nothing about the penalty at all, so it will be due at tax time apparently. We are getting by with her making less money now, but our savings acct. keeps getting smaller in order to live and keep all the bills paid. I would rather sell my RV or whatever, rather than make the mistake that she is about to make.

Unfortunately its her money so she can do with it what she wants. You can show her this thread and others where the advice is almost universal to leave 401K money alone. You can search the WEB and find articles by respected financial advisors that say the same thing and show them to her. But ultimately its her decision.

On her side, it my provide her with greater piece of mind to have a cushion now, even at the large cost.