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kukusmile | Cashing out 401k? |
Hi. I have about 12000k in my 401k plan that I want to cash out for use towards the purchase of my new home. Does anyone know how much tax/penalties I can expect to pay? |
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jennrfp
 |
Please really think about this before you do it. You have a terrific nest egg here, and if you cash it out, you're not only losing money on the taxes and penalties- you're also losing all of the future earnings on your retirement income.
Think of it this way:
10% withdrawl penalty: 1,200
25% tax: 3,000
8% annual appreciation over next 20 years: almost 40,000
Yes, your home may appreciate in value, but you're better off waiting a while and saving the money. Then you can have your cake and eat it too! |
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smcgilli
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that's a really bad idea. |
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KevK
 |
10% early withdraw penalty if you are under 59 1/2 plus the entire amount is added to your taxable income in the year of distribution.
If you can get the 401(k) quickly rolled over to an IRA there are a few other options. You should be able to do this if you no loger work for the company where the 401(k) was accumulated, or if your company allows in-service non hardship distributions (ask your human resources, alot of the larger companies do!)
If its a first time home purchase, you can avoid the 10% penalty on distributions from an IRA. To qualify for treatment as a first-time home buyer distribution, the distribution must meet all the following requirements:
It must be used to pay qualified acquisition costs within 120 days after the day you received it.
It must be used to pay qualified acquisition costs for the main home of a first-time home buyer such as you, your spouse, children, grandchildren or ancestors.
You have not withdrawn $10,000 previously for a first-time home purchase.
If both you and your spouse are first-time home buyers, each of you can receive distributions of up to $10,000 for a first home without having to pay the 10-percent additional tax. But this would have to come from separate IRAs
Generally speaking, with the Real Estate market certainly not going up, you would be better served waiting until you can save the 12K yourself and allow your retirment funds to grow tax deffered.
In the future, never put anything into the 401(k) that you will be counting on for anything but funding your retirment. |
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El Niño
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I once had to pay 20% but i had 50% witheld and i received a return the following tax season instead of paying. |
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Dr. Deth
|
You might not be able to pull it out at all. They only allow that for hardship cases. Sometimes home purchase qualifies - you'll have to apply, and I think it may have to be approved initially by your company's 401k administrator. Also, all the money from matching (if any) MIGHT NOT be fully vested, so you might not be able to get some of the money out - if they did, you would get hit with a 10% penalty at tax return time if you're under 59-1/2 and all the money you take out is normal income - add that to your full year w-2 wages and see what tax bracket that pushes you into - if the 20% bracket, then add 20% on top of the 10% penalty for taxes. apply and see what happens |
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Ryan S
|
don't focus on worst case.... focus on this....assuming you are under 59 1/2..
you will pay 10% off the top as a penalty ... so kiss $12,000 away.
you will pay income tax on the rest...and it is all considered income ... so this will push you into a high tax bracket.
. so your 108,000 will AT LEAST hit the 28% tax. (if filing single slightly less if married)... so kiss away another $24,350 (assuming marginal rate breaks)
leaving you with:
$83,649.25 !!!
you gave up $36,350.75 in order to use your 401K!!!
if your mortgage broker is suggesting this FIRE HIM IMMEDIATELY.... your better off carrying that as a mortgage with a higher payment... getting the tax deduction off interest and keeping the money in your 401k.... if this is the only way you can afford the house... then you should find a different one. |
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s_chayer
 |
You can check with the goverment. because in Canada you can cash out up to 20 000 to buy a house and you have up to 10 year to pay it back without loosing any money.
If you are a canadian check this website
www.servicecanada.gc.ca or call 1-800-o canada |
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Dude2
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I believe that the worst it can be is 30%. That's like a 20% withdrawly penalty that they take out right away and then a 10% penalty you pay when you file your taxes.
However, like I say, that is the worst case scenario and can only get better from there. If you still work at the place where the money was put into the 401k, you can borrow against it and not pay penalties. However, if you leave that job after that, you will have to pay it all back at once. |
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