I need around 50,000 to finish my house and pay off almost all my debt I have an opportuinity to borrow or take a withdrawel with a 20% penalty and an additional 10% for early withdrawel or split it (take a portion on a loan and a portion with the penality). I've had this debt for a while and I'am tired of it, I'am 42 and I have a wife and 3 children we have not
Done very much as a family, this has been a little stressful. With this in mind what do I do, Do I take 50,000 on a loan and pay back my retirement with a substantial payment or take say, 30,000 on a withdrawel with the 30% total penalty to give me about 20,000 and take a 30,000 loan to pay back to obtain the 50,000 I need and only having to pay back the 30,000 instead of the 50,000 to lower my monthly payment?

Do the loan! First, you have to realize that the amount you payback on the loan goes to you. So it doesn't matter that it's a big payment since you get all of the payment credited back to your account.

Second the penalty is NOT 30%. The penalty is 10%. Which means, if you need $50K in hand you will have to take out more to make up for the penalty.

The other 20% that will be withheld is not a penalty but tax withholding. You will have to add the amount of the withdrawal to your taxable income for the year, which might bump you to a higher bracket. Either way, you then figure the tax on your taxable income. The 20% is then credited towards your tax liability. So the actual tax bite might be more or less than the 20% withheld.

Take the loan!

If you take this withdrawal the amount that you have to pay the IRS is the sum of (a) regular income taxes on it, plus (b) 10% early withdrawal penalty. You mention a "20% penalty" - which I assume you mean is the withholding for income taxes that will be taken out of the check they send you. But keep in mind that this 20% withholding is just a downpayment on the taxes you owe - the actual amount you will ultimately owe is dependent on your tax bracket. If you add $50K to your other income, you have the potential of being pushed into a higher bracket, and also of losing some of the deductions that you may be used to taking (due to phase outs). Bottom line is that if you take the $50K you may well owe 35% or more to the IRS, plus whatever your state/local income tax is on top of that, leaving you with perhaps $30K (or less).

In general it is NOT a good idea to take a withdrawal from your 401(k) unless you are in dire straits, which you are not. You're better off taking the loan from the 401(k) - which is not taxed at all. Alternatively, you might consider a home equity loan - interest rates are pretty low right now, and the interest payments are deductible. Leave the 401(k) for its intended purpose - to help you in retirement.

One last point: you mention "finishing your house" - I assume that the withdrawal you are considering meets the definition of "hardship" in that you are using the funds to repair your primary home. But you would not be allowed to make a withdrawal if its purpose was to expand or improve your home. Nor can you use the funds to pay off old debt, UNLESS you are in danger of foreclosure or eviction. From what you've written it seems that the intended purpose does not meet the hardship definition, so taking a loan is really the only option here.