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    meldouger's Avatar
    meldouger Posts: 1, Reputation: 1
    New Member
     
    #1

    Mar 19, 2007, 06:58 PM
    Closing my 401K?
    Hello,
    I'm laid off from my place of employment and I'm currently in college full time. I need more money than I'm drawing on unemployment. My home, truck, debt and utility bills are more than I'm drawing. The only source I have is my 401k...
    I took a loan out earlier last year from the 401k, not knowing I could only have one loan out at a time. So now I feel my only option is to close the account and take whatever is leftover after taxes... Can I do that? How much will I be paying on penalties and taxes.
    I know I need my retirement fund, but I won't have a house to retire in if I keep going at the rate of $-800.00 a month. I'm already a month behind on just about everything.:( Thank you in advance for any help you may be able to give.
    Melody
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,772, Reputation: 846
    Senior Tax Expert
     
    #2

    Mar 22, 2007, 08:58 AM
    Melody:

    You CANNOT withdraw from the 401K, but only as a last resort.

    You will pay normal taxes (both federal and state on whatever is withdrawn, PLUS pay a 10% Early Withdrawal Penalty. The total tax will probably be about 30% for you, but can approach 50%.

    If you do this, they will withhold 20% when they make the distribution, but that may not be enough to cover the tax liability, so be ready to PAY come tax time next year.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
     
    #3

    Mar 22, 2007, 09:03 AM
    If you took out a loan and you are no longer with the company, then that loan would be considered a withdrawal. In the year you lost your employment. So you will have to pay a 10% penalty plus taxes on that amount.

    You MIGHT qualify under hardship rules if the withdrawal is to avoid foreclosure.

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