Hello -

I am trying to understand how much I would lose if I withdrew all the money from my 401K account. I am currently employed but I soon plan to quit and go to school full time. What would be a good time to withdraw the money? Now or when I am in school or it doesn't matter?

I understand there is a 10% penalty and 20% tax withholding, but when I am in school next year, I would be in a much lower tax bracket than I am now. Will I get a refund on some of that withholding?

I'd appreciate any direction you can provide.

Thanks.

FOUR WORDS: Do NOT Do It!

You will get slaughtered by the tax bill.

Let's assume you withdraw $8,750.

Even if you have no other source of income and your personnal exemption and standard deduction completely offset the income taxes on this $8,750, you would STILL have to pay the 10% Early Withdrawal Penalty of $875, because that tax CANNOT BE MITIGATED!

Get student loans and work part-time while you go to school. Leave your 401K alone and let it grow for your retirement. That is the reason you set it up!

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Originally Posted by parmeshv

Hello -

I am trying to understand how much I would lose if I withdrew all the money from my 401K account. I am currently employed but I soon plan to quit and go to school full time. What would be a good time to withdraw the money? Now or when I am in school or it doesn't matter?

I understand there is a 10% penalty and 20% tax withholding, but when I am in school next year, I would be in a much lower tax bracket than I am now. Will I get a refund on some of that withholding?
I'd appreciate any direction you can provide.
Thanks.

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You will pay 10% early withdrawal. Then the money will be taxed as income. If as a student you don't have any income, then you won't pay much in taxes except for 10% ealy withdrawal.

Another option is to roll over it to Trad IRA. Then if you withdraw money to meet your education expenses and meet other requirements, then you will not pay penalty:
"There is no early withdrawal penalty if the expenses are related to enrollment or attendance at an eligible postsecondary school. It includes tuition and fees, books, supplies and equipment."
That means you need some planning.

Agreed. The IRA aspect is an option if you absoultely MUST access this money.

Student loans are a better option, though!