Posted on 03/09/2009 11:03:12 AM PDT by xlib
Is anyone talking about waiving the 10% penalty for early withdrawal, and possibly some help on the tax liability? I've heard no discussion of this, and I'm not sure of the possible unintended consequences, but it's personal now, since I'm going to need to do it soon to keep paying my bills. I've already borrowed the max amount, so that's not an option. My business is home construction related, so no banks are interested in loaning me money, and I don't want more debt anyway. Anyone?
A complete cash out is what alot of people are doing. They’ve seen their 401’s lose %50 percent or more. Credit, car loans, food and just keeping their homes for a little while longer until they can sell is on their minds. From what I understand the penalty is taken out of the cash out, then you pay the IRS the taxes which the 401k company does for you. Then you report it on your taxes. I may be wrong. I haven’t concidered it ......yet.
Yes, you will, but you’ll be paying those percentages/penalties on a lot lower amount of withdrawal, and before the tax rates go up.
I’m not going to do it, personally, just passing on what I heard.
But I believe the the company will discourage you from doing this...almost to the point of not talking to you. Doesn’t matter if your living in a cardboard box.
Be careful about withdrawing what’s left in your 401K. If I’m understanding correctly, you have a loan against your 401K. Withdrawing may trigger some provision that makes the loan due and payable immediately. Maybe not, but read the fine print. You should also read your plan’s rules for hardship.
If you withdraw, they are going to prorate your withdrawal between contributions and earnings, and the earnings will be taxed as ordinary income in addition to the 10% penalty. The penalty winds up being much more than 10% in the long run.
I’m a retired CFP. When the GOP took control of Congress in 1994, and there was serious discussion about lowering the capital gains rate, there was some study done as to the “problem” this posed for 401k plans, in that as most people were investing in common stocks, for the long term, in their 401k plans, and correctly so, one side effect was that you were in effect turning a tax favored capital gains into ordinary income.
cash out gives yu a big tax and penalty hit, but so do loans from your 401K. My understanding is that your loan is taxes coming out, then when you pay it back, you are paying out of post-tax income, so you get douvle-peanlized.
401K - too many rules and too few benefits, it seems.
That's right. Dave Ramsey explained it. Better to attack your other debts, especially credit cards and car loans first. Listen to Dave Ramsey's show or see daveramsey.com for how to do this.
Proof of hardship and and an exact dollar amount for the hardship. Plus all the penalties and taxes. If you owe on a loan that will also come due.
Best to call your 401(k) helpdesk.
An employee can not take money out of his 401k as long as he is employeed with the company. He has to quit, be fired, or leave the company in some fashion.
Only exceptions are loans, and hardship withdrawals. The situation outlined in the original post won’t qualify for hardship.
If the original poster leaves the comapny for ANY reson, the total amount of the loan, including interest accrued will be considered income in the year he leaves, and may also trigger a 10% penalty if he is less than 591/2.
I’d put it in a low interest CD before I’d cash in. Better to make 2 or 3 percent than lose 10%. I don’t think there are too many financial advisors out there who would recommend and early withdrawl.
yes it was thanks to a do nothing house and senate controlled by the dems for 2 years.......
I think you have to be in danger of foreclosure and/or have to demonstrate that you have NO other means to sustain the expenses. I believe you will have a 10% penalty, regardless, plus tax on the ordinary income. If you terminate from your employer, you will be expect to repay loans from the plan immediately, or those will also be subject to income tax and penalty.
Read here: http://www.401khelpcenter.com/hardships.html
Thanks, all.
In this case I am the employer, and the plan does allow for hardship withdrawals. The hardship is that the business doesn’t have enough cash for current needs. I’m trying to keep it alive until the housing market begins to recover. The 10% penalty sucks, but there it is. As I said, I’m not interested in any more debt, and I doubt anyone would loan it to me, since I’ve been working without a paycheck for some time now.
I'm thinking the same way. I don't care about the penalty. I need to reduce debt. I've heard Dave Ramsey on this and I understand why I shouldn't do it - in a rational world. My concern is that Obambi will so change the financial structure of this country that it won't matter if I have a 401(k) or that it might be hijacked by the government. Did you see the thread on the state of Florida looking into the legality of raiding 129 plans?! Who knows what the heck will happen w/our funds.
I need to be debt free. We've been told we won't get raises for the foreseeable future. Again, in a rational world I would think about changing jobs, but all of the university depts in my field are going through the same thing, some are in much worse shape than we are. I'm fortunate to be in a field where there is private industry demand, but with the whole economy in the tank, there aren't many private sector jobs either. I think I'm good, job-wise, to ride it out, but I am seriously, seriously thinking about cashing out some of the fund to pay off debt so that I have less to worry about as long as 0 is in power.
Bush entered us into a demolition derby,then Obummer drove us over a steep cliff.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.