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401K Early with drawal due to hardship
We need to pay our house mortgage (about to go into foreclosure)and my husband has a business that he is going to loose unless we have money.
Our only options is to cash in my 401K. How badly is it going to effect us come tax time. |
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This happened to me & my husband, one day he went into work & they were no longer there.. we thought about it & decided to cash in what little $ we had in his 401K & we paid taxes on it & of course penalties for early withdrawl & paid our mortgage, school stuff for child still at home & basic needs until he got another job.. IRS Penalized us an additional 10% & started chargeing us every month penalty after penalty along with 6% interest.. we ended going to WPCU to get a loan to pay IRS off. It was just getting bigger.. So try not to if at all, We explained our problem & they told us that we should have went down & got on Government assistance (food stamp, medical, $ ) I told them our economy is bad enough.. |
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If you withdraw from your 401(k) you will owe income tax (both federal and state/local, as applicable) plus the 10% early withdrawal penalty. The check you receive will already have 20% withheld for federal taxes - whether this is sufficient or not is of course impossible to say, as the true amount of tax due is dependent on your tax bracket. They will not withhold the 10% penalty, so you will have to come up with that cash amount in April. They will also most likely not withhold any state/local tax, so you will need to come up with that as well. A better option would be for you to take a loan against your 401(k). A loan is not a withdrawal, so no taxes or penalties are due. Plus the interest you pay on the loan is to yourself rather than some bank. So I suggest talking to yor 401(k) administrator about the possibility of taking a loan. |
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You will pay AT LEAST 25% on the early withdrawal, and possible as higher af 50%, depending on your overall income level and the state in which you live.
If it is at all possible to avoid taking money out of the 401K, then DO NOT DO IT. You make the withdrawal only if you have NO OTHER CHOICE! I endorse Ebaines' suggestion that you look at a loan possibility. |
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