I'm leaving my current company and want to cash out my 401k so that I can purchase a reliable vehicle for my next job. If I have a total of 10,000 in my 401k how much would I receive when I cash out and how much would I owe in penalties? I live in Florida.

Thanks in advance

Rough numbers: if you're in the 25% federal tax bracket, then you'll pay $2,500 in income tax, plus $1000 penalty, netting you about $6,500.

When do I pay the $1000 penalty? Is it when I complete my 1040 for 2007?

Thanks

The 401K custodian will withhold 20%, but that is ONLY a down payment.

When you file your tax return, expect to pay about 35% in taxes and penalties for accessing your 401K early.

BOTTOM LINE: DO NOT DO IT!

You do better buying the car on credit and paying a usurious interest rate of 25% than taking the money from your 401K.

You should roll the money over into a traditional IRA and LEAVE IT ALONE! It is for your retirement when you are 65. Do not touch it until then.

If you leave it alone, in 40 years growing at 9%, that $10,000 could be worth $320,000!

So let me get this straight. They automatically take 20% (florida) then come tax time they want another 35%? So I only receive a total of $4500, that doesn't seem to make sense to me. I must be missing something here. My total income is about 40,000 for the year. Does that make a difference when I claim?

I think ATE's point is that the check you receive for your $10K withdrawal from your 401(k) plan will not have enough taxes withheld, which means you will have to pay more to the IRS come April. So don't plan on spending the full amount of the check. The amount of the check should be $8K (that's $10K less 20% withholding). You will have to pay around $1,500 more to the IRS in April - that's the 10% penalty plus another 5% assuming you are in the 25% bracket, for a total net tax and penalty payment of 35%. Which means you net $6,500.

Well said, Ebaines. On reviewing my posting, I could have been clearer as to how much the tax liability will be.

However, my original point is still valid: DO NOT DO IT!

I agree, with don't do it. Instead roll the money into your new employer's plan and take a loan against it. You can borrow to buy the new vehiclke then pay it off with the 401K loan.

Scott has some good advice.