I am considering quiting my present job and using my 401k money to open a business and was wondering what percentage of the balance that I would be subject to loose?

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Originally Posted by plumdog

I am considering quiting my present job and using my 401k money to open a business and was wondering what percentage of the balance that I would be subject to loose?

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Hi,
I too am considering closing out my 401K. On my Merrill Lynch web site it says there is a 28 percent tax liablity and 10 percent early withdrawal penalty, which makes it a whopping 38 percent! If you have a web site for your carrier I would check it or call your carrier.

Actually, the 38% tax liability sounds about right. It IS a hefty price to pay to get the 401K money.

PlumDog:

Consider a SBA loan. The interest you pay is much better than the tax bite you will pay for the 401K money. Heck, I would make the argument that launching your business using credit cards is a beter option than using 401K money, because the interest is tax deductible.

The answer depends on your state + federal tax bracket. Plus % penalty. Yes, you have to pay taxes on it, but you didn't in the first place. Also, when you are old and decrepid, you will be in a lower tax bracket, and that is THE MAIN tax savings.

Good answer.

Is the 401K early withdrawal treated as ordinary income? Separately, at what income level does a student have to pay taxes?

To give you complete context, I am thinking about returning to school next year (and thus will not have an income), and want to use some of the money I have saved in my 401k to pay some of the tuition costs, but hope to recoup some of the tax on the 401k through mortgage interest deductions and education credits.

Am I trying to be too cute here?

When my husband Completely withdrew from his 401K they sent us a 1099 for it at the end of the year. In other words yes we had to count it as income.

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Originally Posted by greencar

Is the 401K early withdrawal treated as ordinary income? Separately, at what income level does a student have to pay taxes?

To give you complete context, I am thinking about returning to school next year (and thus will not have an income), and want to use some of the money I have saved in my 401k to pay some of the tuition costs, but hope to recoup some of the tax on the 401k through mortgage interest deductions and education credits.

Am I trying to be too cute here?

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One more thing... is there a limit to the amount that I can withdrawal from my Roth IRA for tuition without incurring the 10% early withdrawal penalty?

You CAN withdraw IRA funds for higher education costs without paying the 10% Early Withdrawal Penalty.

If I close my 401k and then put say 25% into a CESA(college education savings account) for my son, then even if I am taxed on it, I still get a tax break for the contribution?

I believe that CESA's grow tax free; you get no immediate tax write-off, though your state MAY offer a tax deduction.

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Originally Posted by AtlantaTaxExpert

Actually, the 38% tax liability sounds about right. It IS a hefty price to pay to get the 401K money.

PlumDog:

Consider a SBA loan. The interest you pay is much better than the tax bite you will pay for the 401K money. Heck, I would make the argument that launching your business using credit cards is a beter option than using 401K money, because the interest is tax deductible.

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Good Idea, since they are probably going to want collateral for the loan you could offer your 401k.

Negative on offering the 401K as collateral. That is strictly forbidden.

How much will I be taxed if I withdraw my 401k early

I like to speak to someone over the phone to discuss withdraw from my 401k plan

I like to speak to someone over the phone to discuss withdraw from my 401k plan

Email me at [email protected], and I will email a phone number to call.