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

    Dec 2, 2008, 06:21 PM
    Early liquidation of a 401k
    Hey all,
    I understand there are some exemptions from paying early liquidation fees from a 401k. I'm in my mid-20's and have about 2k in a 401k account that's not doing much. Even with compounding and the fact that I'm not longer with the employer, I just want to liquidate and help pay for school (graduate school). Isn't there an exemption for higher education? And in that vein, would all of my penalty fees be the state/local taxes?

    Thanks!
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #2

    Dec 2, 2008, 07:36 PM

    Nope You would still pay the 10% penalty, plus taxes on the income.
    MukatA's Avatar
    MukatA Posts: 7,110, Reputation: 176
    Tax Expert
    		  
    #3

    Dec 3, 2008, 03:44 AM

    You will pay $200 early withdrawal penalty. Also $2000 will be counted towards your income.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #4

    Dec 3, 2008, 10:21 AM
    LKCRKH:

    If you want to save the $200 Early Withdrawal Penalty, roll the 401K money into a rollover IRA.

    Then (and only then) do you withdraw the money early to pay for the higher education. What Scott and MukatA say is true: there is NO EXCEPTION to the Early Withdrawal Penalty for higher education costs when you withdraw from a 401K.

    However, an exception for higher education expenses does apply when you withdraw from an IRA.

    So you simply need to put the 401K into an IRA FIRST!
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