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If a person takes a hardship withdrawl from a 401(k) I suspect that even with 10% taken for taxes on withdrawl a person could be paying more in taxes if they are in a higher tax bracket. Plus, as I looked through some of the answers to another hardship withdrawl question, a person would be required to pay other state and local taxes. I would like to get some comments on this.
Thank you.
I think there is a surrender value, or better to call it cashing it in and then there might be a loan provision. Some plans permit loans, some don't, ck with the plan or your HR Dept on this - if you take a loan, then I believe you just pay interest on the loan, no income taxes like you would with a complete surrender. And the surrender amt would be taxable as though it were earned income, treated just like you went out and earned it, so yes, the higher the income tax bracket you are in, the higher the taxes would be. Not only will you owe the IRS just as though it were earned income but you would probably owe the state that you live in.Quote:
Originally Posted by dws21396
I'm thinking this might help:
The 10% early withdrawal penalty on 401k withdrawals can be waived if you meet 1 of any of the 5 criteria below:
I) You become totally disabled (mentally or physically)
Source: http://www.research401krollover.com/hardship-withdrawal-401k.html
ii) Your medical debts exceed 7.5% of your Gross adjusted income
iii) The courts have ordered you to make payments to your spouse, children or dependents due to divorce or other settlement
iv) You are fired or permanently laid off in the year you turn 55
v) You are fired or permanently laid off and have a payment schedule of regular distributions for the rest of your expected life. Once such a withdrawal is taken, the investor is expected to take these withdrawals regularly for the next 5 years, until he turns 59 and 1/2 years old.
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