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    caperuzo's Avatar
    caperuzo Posts: 2, Reputation: 1
    New Member
    		  
    #1

    Jun 30, 2008, 10:50 PM
    401 cashout, taxes and penalties
    Hello

    I want to cash out my 401k later this year in order to start a business, but I wanted to know how much taxes and penalties I will have to pay. It amounts to about 72,000. I've heard about tax brackets but don't know what they are and how it would affect the final disbursment of the money. Please help.

    Caperuzo
    MukatA's Avatar
    MukatA Posts: 7,110, Reputation: 176
    Tax Expert
    		  
    #2

    Jul 1, 2008, 12:48 AM
    On the amount you withdraw from 401K, you will pay 10% early withdrawal penalty. Then the amount will be treated as your income.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #3

    Jul 1, 2008, 06:02 AM
    I would strongly advise against this. You will be throwing away a large portion of your savings.

    As noted you will pay 10% as a penalty for early withdrawal. Next the $72K will be added to your income for the year (doing it before the end of the year is the worst possible time). The US has a graduated tax rate. The more you earn the larger percentage of your income goes to taxes. So adding $72K to your income for the year would likely move you into a higher tax bracket (larger percentage), meaning you would lose even more. You would likely lose 30-40% of the $72K in taxes, meaning you will net less than $50K. If you can afford to throw away over $20K, then go ahead.
    caperuzo's Avatar
    caperuzo Posts: 2, Reputation: 1
    New Member
    		  
    #4

    Jul 1, 2008, 09:50 AM
    Thanks for the responses. I don't think I want to throw away any of this hard earned income. A thousand thanks again.
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