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kimba4 · Jan 15, 2008, 10:49 AM

My husband is losing his jobthe end of April. Rather than lose the house we would like to refinance by using some of our 401k's. If we take the money out, are there still penalities if we use the money for the down payment on a refinance?
Thank you

AtlantaTaxExpert · Jan 15, 2008, 11:38 AM

If at all possible, avoid cashing in your 401K.

Here is what you will pay if you do so:

- You pay federal and state income taxes at your marginal tax rate; that is the tax rate you pay on the LAST dollar you earned in 2008. For most people, that is AT LEAST 15% and likely 25% for the federal return. For most states, the marginal rate is about 7%.

- Then, on top of that, you pay a 10% Early Withdrawal Penalty.

So your tax rate would be AT LEAST 25% and maybe as much as 50% of whatever withdraw from the 401K.

You have a few months before the job is terminated. Your husband show begin beating the bushes for a new job RIGHT NOW. His old employer may even help him with the process.

I posted a detailed answer to NowWhat's post under who to talk to about 401K (whose situation is VERY similar to yours). Look at that post for guidance.

kimba4 · Jan 15, 2008, 11:49 AM

Thank you for your response. Very helpful. As far as job hunting, he has been looking since they gave him the news last October. His company is leaving MI for Virginia. His company is no help they offered packages (for what they are), so that their employees would not leave early. Michigan is not the best place to look for jobs right now.
Thanks again

AtlantaTaxExpert · Jan 15, 2008, 12:26 PM

Agreed about Michigan. Have you considered moving?

kimba4 · Jan 16, 2008, 09:11 AM

Not right now. I work for one of the "old big three" and at least for now I still have a job. If I get cut we will probably go south. (I hate snow anyway:) )

AtlantaTaxExpert · Jan 16, 2008, 10:54 AM

Come on down!

I used to live in Cincinnati, and experienced the GREAT SNOW STORM of 1976-1977, when the temperature went below ZERO in late NOVEMBER 1976 and did not go ABOVE ZERO until MARCH 1977. We got about six feet of snow in that period, and, for the first time in recorded history, the Ohio River FROZE SOLID (people actually drove their cars across on the ice).

I missed the follow-on snow storm of 1977-1978 (I was in the Army by then), but my family said it was even worse than the previous year.

In 1978-1979, Ohio got hit by the THIRD big snow winter in a row. By this time, I was in Europe with the Army, and Europe got hit with the worst snowstorm in ITS history.

Shortly thereafter, I decided I seen enough snow to last me for the rest of my life, and I moved to Atlanta, where it snows maybe once every FIVE YEARS! :-)