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    johnywhiteboots's Avatar
    johnywhiteboots Posts: 1, Reputation: 1
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    #1

    Jun 26, 2009, 02:26 PM
    401k cash out
    I was laid off from my job in 01-01-09,don't look to go back. My question is, I have a 401k loan balance of 25,000 and a vested balance of 36,000 left. I need to cash out what I have.how much do I loose and what will I have left? Thank you
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #2

    Jun 29, 2009, 05:32 AM

    I'm going to assume that you are younger than age 55. If that's not accurate, post back.

    First, you should be aware that the $25K loan will be reclassified as withdrawal within 60 days - this is because since you are no longer on the payroll there is no way to withhold your loan repayment amount from your paycheck. So if you do nothing (that is you don't pay the loan back within 60 days), the $25K loan will be treated as income to you, and you will owe ordinary income tax on the amount plus a 10% early withdrawal penalty. Depending on your tax bracket, plus the amount of any state or local income tax where you live, you should plan on paying out anywhere from 30% to 45% of this amount in taxes and penalties by next April.

    If you also withdraw the other $36K, you will owe a similar percentage on that as well. Better would be to either leave the $36K where it is, or roll it over to a rollover IRA account - this way you avoid the penalty and continue to defer income taxes (hopefully until retirement) on this.
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