[Livinthedream]

I am currently working for a company for 19 years. I have $81,000 total in my 401k
With a $35,000 loan against it. The loan was used for a business venture into real estate.

This business venture is starting to grow and I am looking to leave my company.

When and how much tax will I pay if I pull all the money out in January of 08?

Thanks

[ScottGem]

If you take a full distribution from the plan in January, then 20% will be withheld to be used towards your tax liability for 2008. When you file your 2008 taxes an additional 10% will be due as well as having the full value of the distribution added to your taxable income for the year.

[ebaines]

When you leave your job the loan will immediately become callable. Assuming that you don't pay it back, then you will have to pay the 10% penalty and income tax on the entire $81K. So, assuming that you have $46K in your 401(k) left to distribute (that's $81K minus the $35K you already have), then you will owe $8,100 in penalties plus income tax on $81K. Assuming you are in the 20% bracket, and since you don't tell us what state you live in I will assume a 6% state tax rate, so you will net $46K - .26*$81 - .1*81K = $16.8K.

Clearly this is a very expensive way to get $16.8K. Unless you absolutely need this money you are better off either leaving the 401(k) where it is or rolling it to an IRA. Have you considered taking out a home equity line of credit to fund your business? You'd be much better off that way, given the tax break you get with a HELOC, as opposed to the tax penalty you pay by withdrawing your 401(k).

[AtlantaTaxExpert]

Ebaines raises excellent points.

I have nothing to add.

[Mobea]

How old are you when you leave your job?

[AtlantaTaxExpert]

Age can be an issue. Based on your posting, I assumed you were less than 55 years of age.

If not, let us know!