[cawcat]

The plant that I currently work at is closing down. I have a 401(k) that currently has $16,000 in it. I am 48 years old. What kind of penalties am I looking at if I pull all the money out when the plant closes? Approximately how much in taxes will I be paying at the end of the year? I have made $20,000 so far this year. I will also be receiving a pension buyout from the company where I have been for fourteen years. I need the money to pay off my high credit card debt and also to pay for school.

[LUNAGODDESS]

No Penalities If You Move (rollover) 401(k) To An Ira... go To Your Bank... but It Depends On The Plan Administor...

[kp2171]

I am not an expert on this issue. There are others who frequent this forum who will correct any mistakes I have make in this post. I would wait for other replies or seek professional help before you assume what I write here is exactly correct for your situation.

I think the hit is something like 30%. 20% for taxes and then a 10% penalty. And the 20% is withheld just like taxes on wages. The actual amount you owe for taxes will depend on your total income and bracket and rate... so basically they automatically pull this 20% out, and at tax time if its too little or too much the adjustment will be made by a refund or your writing a check. You will get a Form 1099R next year that will show the amount distributed and the amount held back in taxes. The amount of the distribution will be treated as income, and then combimed with all other income reported to determine you bracket and rate... something you need to be careful about... with large distributions sometimes knocking you into a higher bracket. Also, I really don't know if the number is truly 20%... this is simply something that I remember from when I looked at my 401k and the penalties for early withdrawl.

I believe the 10% federal penalty on the early distribution is also held immediately from the distribution. I haven't a clue if there is a state penalty.

And here's another place where ill need to be checked by others who know better. I believe the %s are applied to the full amount in the plan, so you'd get hit 10% of the 16,000 for 1600. And then 20% (if this % is really right) off the 16,000 for 3200. Leaving you with 11,200. Then, you again may owe more or less taxes at the end of the year depending on your total income and taxed amount.

I have no idea if there are hardship exceptions that can be used here to borrow against your plan. Your plan administrator should be able to help you with some of this information.

I'm not a fan of repeat posts across the boards, but you might also post this same question in the taxes section of money & services. Atlantataxexpert seems to answer questions in that forum quite promptly and with great knowledge.

* edited in * forgot to mention, if you are going to school there might be a hardship form that would enable you to have a loan against your 401k instead of a withdrawl... this might not be true, but if it is it would save you money... you'd probably need to roll the $ into another administrator... again, others need to help on this one.

[ScottGem]

The tax hit will depend on your personal situation. Assuming you were not to earn any more this year, you would have to pay taxes on $36K. The 20% that KRS refers to is just the Witholding. The plan admins are required to withhold that just as taxes are withheld from your salary. However, that witholding is just federal taxes, not any state or local. What you actually pay is dependent on your total income for the year.

In addition to the tax bite, you will also have a 10% penalty taken. This is the early withdrawal penalty. Since the company is closing, you will not have a loan provision.

I would recommend not using the 401K unless you absolutely have to. If they are giving you a lumpsum payout of your pension, use that first. While there are still taxes to pay on that, you don't have the penalty. Rollover the 401K money into an IRA. If you still need to cash out some of that you can and only have to pay for what you actually take out.

[Naldoon]

Okay I'm abit young and new. I'm going through something rather similar myself. I have done a lot of research so allow me to help you out abit!

You money, regardless of the amount 20% taxes are withheld automatically. If you pull the money out and roll it over within 60 days you will get ALL or PART of the money.

Further, if you do NOT put it away within the 60 days, you are then taking another penalty of 10% if you are under the age of 59 1/2.

If the money you take in pocket sets you into a new income bracket. You are taxed more on that.

However, if you leave the money in there, you can take a loan up UP TO 1/2 in your 401k. Because the other 1/2 is what you can loan against. Also, ALL interest paid on that load is interest PAID TO YOU. You can also loan out more against it for hardships (house burn down), schooling, or puchase of a house. Because then you can use your house as an asset against that loan.

I'm not too sure on this though... if you are set over the financial bracket, I'm NOT sure if that's pre or post the penalties or taxation. Also, I'm not sure, but I think it's a flat tax of another 10% if it sets you into the new bracket.

Either way, it's best to expect to only see 60% of that money and 40% taken from you. So if you do take it, don't go on a spending spree, hold the money or at least another 10% to cover any possible taxes.