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    btaxquestions's Avatar
    btaxquestions Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Aug 22, 2008, 08:24 AM
    401K withdrawl to pay debt
    Thinking about making a withdrawl from my 401k to pay off credit card debt. My credit card interest rates are very high from 19 to 27%. My 401k plan does not allow loan withdrawals where you can pay the money back to the account. Is there an easy way to calculate what the taxes would be on the withdrawl? Also, if you have any better ideas, please share.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #2

    Aug 22, 2008, 08:35 AM
    This is not the best idea. You will lose a significant portion of your savings. First there will be the 10% penalty. Second the amount you withdraw will be added to your taxable income for the year. This will increase your tax liability. So you will be paying upwards of 25% for the money you withdraw. Better to try and negoitate lower interest rates on your cards.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #3

    Aug 22, 2008, 11:01 AM
    Actually, Scott is under-estimating the tax burden.

    It CAN be as high as 50% in some states. The 25% Scott quotes is the minimum you would probably pay.
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