401k Penalty

Frequently Asked Questions

1. QUESTION:
   401k penalty???
   I have about 24k in my 401k. I would like to withdraw about 10k for an investment. I would guess my principle is about 19k. I am 30 years old. How do I find out what my penalty payment will be. Thanks.

   • ANSWER:
     You have 2 penalties. The 10% penalty that is mentioned, and you have to add that to your taxable income this year. Also, if you withdraw it, the feds take 20% off the top, so you’ll have to withdraw more than k to get k. If you’re in a 25% tax bracket, you pay ,000 penalty, and then ,500 in taxes, so you’ll only end up with ,500 anyways.

     Unless you’re going into a tax free investment, any income you earn in your “new” investment will also be taxable – whereas your 401k can grow tax deferred -

     Try to find somplace else to get the money from.

2. QUESTION:
   What’s the 401k penalty if you have very low income and may not have a federal tax burden at all? Just the 10%?
   If the taxes and penalty are prohibitive to taking out 401k money, what if a person normally has no tax burden (EIT credit recipient)? We’re only talking about k, for a one-time debt relief related to a divorce. If the penalty is only 0, it may be a useful option, where no other solution is available. Is there something I’m missing?

   • ANSWER:
     Well, some plans come with hardship components allowing one to withdraw money without penalty. I’m still not sure how the stimulus will affect 401 (k) withdrawals, but the normal penalty is 10% plus federal income tax.

3. QUESTION:
   Is there 401K Penalty Tax Relief in the American Recovery and Reinvestment Act?
   I’ve searched online but can’t find the details for the Stimulus. Is the 10% penalty being waved for 2008 Federal Tax Filing if I withdrew from my 401K in 2008?

   • ANSWER:
     It is not being waived for 2008. Have not heard if it’s going to be waived for 2009.

4. QUESTION:
   Can I withdraw from my 401k without penalty to fund my college tuition?
   I am planning on working for a couple of years before going to school for a regular MBA. Can I contribute to my 401k plan now and withdraw it without penalty to fund my college tuition? Or is it better to take the tax hit now, rather than take the penalty later ?

   • ANSWER:
     If you leave your current job before going to school, and you do a direct rollover from your 401k to an IRA, you can use the proceeds for qualified higher education expenses. You will have to pay regular income tax but not the premature distribution penalty.

     If you anticipate that your income will be less while you’re a student, then it is probably to your advantage to take the deduction now and pay regular income tax on the proceeds later when you might be in a lower tax bracket.

     MADMAN is incorrect regarding the premature distribution penalty. On page 53 of the IRS Publication 970, it states that you can withdraw from your IRA without the penalty if you use the proceeds for qualified higher education expenses in the year that you make the withdrawal. Of course, you still must leave the job in order to be able to do the direct rollover of your 401k into an IRA.

5. QUESTION:
   can i withdrawl a small amount from my 401K tax penalty free.?
   Got laid off after a few months from a new job. I have ,300 in the 401K . I really could use the money and its not alot of money. Can I withdrawl this penalty free or is the penalty on any amount of money.

   Thanks.

   • ANSWER:
     loss of job is one of the reasons that you can withdraw money from a 401k without the 10% penalty if you are under 59 1/2. You’ll still have to pay regular income tax on the withdrawal but not the 10% penalty.

6. QUESTION:
   How do I take my money out of 401k without penalty?
   If I change a job, and roll my 401k into an IRA, can I then take money out of the IRA to fund my childrens education without the penalty?

   • ANSWER:
     You can withdraw the money for childrens higher education. Details:
     Higher education expenses. Even if you are under age 59½, if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax. The part not subject to the tax is generally the amount that is not more than the qualified higher education expenses (defined later) for the year for education furnished at an eligible educational institution (defined later). The education must be for you, your spouse, or the children or grandchildren of you or your spouse.

7. QUESTION:
   Is switching to a Roth IRA from a 401k without penalty still possible?
   My retarded co-workers voted in a new contract that ends employer contributions to our 401K, so I want to do a Roth IRA and would love to be able to transfer my current 401k balance into if it is still allowed penalty free.

   • ANSWER:
     If you transfer 401(k) money to a ROTH you would have to pay taxes on it.

     Just leave your 401(k) where it is, and start contributing to a ROTH. You can have both.

8. QUESTION:
   Can I withdraw from my 401k without penalty to pay off my time share property?
   Can I withdraw from my 401k without penalty to payoff my timeshare properly?

   • ANSWER:
     Do you mean withdraw from your 401K to put the money in the garbage can?
     If you don’t have money to pay for it; what makes you believe you would be able to use it?

9. QUESTION:
   Will my mortagage penalty & interest offset my 401K withdrawal penalty and added income ?
   Well before I make the big plunge I am in need of some help and second opinions are always handy. I am buying a home and must pay 20K in prepayment penalties and another 17K in closing costs. To get the montlhy payment I can afford on a 440K loan I will need to withdrawl from my previous employers 401K plan. My plan is to pull out the minimum amount to cover the closing and to pay off car/visa debt that I am inheriting. If I pull out K (only 8K after tax) from my 401K how much will I need in mortgage interest & points to completely offset what is withdrawn from the 401K for the purposes to determine adjusted . The goal here is to NOT owe any fed/state tax. BTW I live in California. If I don’t make this withdrawl for 1 I won’t be able to afford the mortgage and secondtly I’ll continue to pay up to 10% interest on the debt I’ve inherited. So if anyone has any brilliant ideas I’m all ears.

   • ANSWER:
     Personally, I think you are in over your head on the mortgage. If you take out money from your 401k, even though you are “paying yourself back” as people say, you are losing opportunity cost of the earnings you are not gaining on those dollars for the rest of your life. Is it worth it?

     If you inherited debt (can’t figure out how that would happen — if someone died and left a debt, the estate would pay it or if there was no money in the estate the debt would be canceled by the company… they can’t go after a dead person), you could just take out a non-secured loan, assuming your credit is good (which I assume it is since you are qualifying for a 0k mortgage) to pay off that debtor and then pay off that loan at a more reasonable schedule.

10. QUESTION:
    How can I withdraw 401K with Penalty or taxes to purchase investment property?
    I would like to withdraw funds to purchase and investment property from my 401k. the 401K is with an old employer. What is the best way to get the funds without being penalized or paying taxes? Someone told me to transfer to an IRA account. Is that true?
    OK, I am 35 and married.

    • ANSWER:
      No.

      There are no exceptions to paying the tax.

      There are a few exceptions to paying the 10% penalty but this is not one of them.

      The same goes for IRAs.

11. QUESTION:
    First time homebuyers: No IRS penalty on 401k withdrawal?
    I jointly own a house with my wife, who is divorcing me. We are under age 59. Can I avoid paying the 10% early withdrawal penalty if I use the 401k funds to become the sole owner of the house? In other words, would I qualify as a first-time homebuyer, since I’ve never owned a house by myself?

    • ANSWER:
      No. Your 1/2 interest is already owning a house.

      Besides, even if you didn’t own a house, it’s money from IRAs, not 401Ks that had such an exception on the penalty.

12. QUESTION:
    When you have to pay a penalty for 401K early withdraw, how do you pay this? Are you billed by the IRS?
    I just did my taxes online and I took an early withdrawl on my 401K last year. I know I have to pay taxes and that shows on my return, but will they bill me the penalty fee or how does that work?

    • ANSWER:

13. QUESTION:
    Early 401K withdrawal-paying the penalty fee upfront with the 20% tax?
    I need to do an early withdrawal from my 401K-cash out. I understand that they will automatically deduct 20% for tax purposes. My question is that can I have them take the additional 10% penalty fee along with the 20% at the same time so I don’t have to worry about the penalty fee when tax time comes around? It is necessary for me to withdraw from my 401K at this time due to some hardship.

    • ANSWER:
      You will have to speak to your 401-K administrator. They should be able to take 30% out instead of the 20%, but each administrator has it’s own set of rules.

      If they do not take the 30% out, you can calculate the 10% amount and send that amount to the IRS with a 1040ES form. Look at www.irs. gov – click on forms – and you can print out the form needed to mail in your payement.

14. QUESTION:
    Can I borrow from my 401k penalty free?
    As we all know, times are hard. I need some fast cash now, but don’t want to borrow from friends or family, or get a title loan. Someone told me right now you can borrow or take money out penalty free. Does anyone know?

    I have about ,000 in my 401k and need about 0 or so for bills, etc.

    • ANSWER:

15. QUESTION:
    I owe back penalty on my 401k when i was unemployed do i still owe?
    I took money from my 401k in 2008, well I guess I owed the govt 3776.00 in penalties, and I now have to pay, but I was un-employed then, and they now have this new law you don’t have to pay the penalty if you are un-employeed.
    Is there anything I can do to not pay this.

    • ANSWER:
      Short of being abducted by space aliens, you are still going to owe the money. Being unemployed does not help. You do get a break on how much unemployment is taxable but that is about it.

16. QUESTION:
    Is there a way to cash in my 401k without tax or penalty and invest it in starting a business?
    I heard there was a way to start a small business using your 401k and not get taxed or penalty.

    • ANSWER:
      If you are still working at the employer which sponsors the 401K, then you can’t take money out of it except to buy a home. That is a loan, not a distribution unless you leave the company.

      Taxes are like sex. You shouldn’t learn about either from people on the street. You should learn from experts.

      You can’t use the money in your 401K to invest in a business you own. All investments must be in disinterested third parties. That means you can buy stock in GE or Apple, etc. but you can’t invest in the stock of a company you control.

      I hope this helps.
      Gary

17. QUESTION:
    Do you have to pay a penalty for liquidating 401k account if you are under the poverty level?
    For alI you CPA’s out there…I am recently divorced, and because of that & the economy, am facing financial hardship. I am about to receive half of my ex-husband’s 401k. I am having them withhold 20% for taxes, but am not sure if in the state of NH, and because of my income level, I will need them to withhold any for penalties. Can anyone answer this for me? Thanks!

    • ANSWER:
      The term “poverty level” means nothing in the tax code.

      One of the exemptions to the 10% penalty on a 401k withdrawal is a QDRO (Qualified Domestic Relations Order).

      http://www.401k.org/AboutPlans/GeneralInformation/401kandDivorce/tabid/66/Default.aspx

18. QUESTION:
    How much of a penalty does it place on you if you withdraw money from your 401k?
    I need to consolidate my debt or pay it off and the best source to do this with that I can think of is my 401k. What kind of penalties do they place on you for withdrawing from it. I only want to take about 00 or so. I am a single mom with 2 kids, would this effect my tax return a bunch next year? If it is too risky, what alternative should I use to get out of debt?

    • ANSWER:
      Check with your plan administrator, debt consolidation itself does not count as a hardship. If you are declaring bankruptcy or being foreclosed, your plan may have hardship provisions for early withdrawal.

      Many people erroneously believe that you can withdraw money from your 401K simply by paying the taxes and a 10% penalty. Yes, you will pay the 10% penalty and taxes on it if you are allowed to take it out, but you may not be allowed to take it out before the age of 59 and a half.

      You may wish to defer further contributions until you can get out of debt.

      Grandpa

19. QUESTION:
    What penalty would I have if I withdraw K from my 401K at this time?
    I would like to take K to pay off everything, I am 60 years 6 months old so I do not have to repay this to my 401K.

    What penalties (charges) am I faced with?

    Thank You…..

    • ANSWER:
      If you’re just paying down debt, you need to consider what the interest on your debt is versus the penalties for withdrawing from the 401k. First, you will have to pay income tax on the money. Best case scenario would be at a rate of 15%, which is ,000. I really don’t recommend you take anything from your 401k.

20. QUESTION:
    If I withdraw all of my 401k, what would be the penalty fee & taxes?
    I’m a 30 year old recently unemployed NY State resident and I need the money in my 401k because I will be out of a job for a considerable amount of time. I currently have about 00 in my 401k, if I were to withdraw the full amount how much would the early withdrawal penalty be as well as the federal & state taxes?

    • ANSWER:
      You’ll have to treat the entire amount as taxable income in the year you withdraw it, so it’s taxed at whatever your marginal tax bracket is. The early withdrawal penalty is an additional 10%, or 0. If you can qualify for a loan at your local credit union or something it’s going to cost you much less.

21. QUESTION:
    Can I moved my retirement fund to a 401k without penalty?
    This is through ICMA RC a state funded. I do not work anymore due to disability,and I cannot put anymore money into it.. Can I be penalized by moving it before my retirement.

    • ANSWER:
      You can’t move it into a 401k unless you work for a company that offers a 401k plan. However, you should be able to do a direct transfer to an IRA account without penalty. This offers the same tax deferred benefits of a 401k, except that you manage it yourself with an investment broker or a bank, instead of having it controlled by your employer.

22. QUESTION:
    Does the weatherization energy credit reduce the amount of a 401k hardship withdrawal penalty?
    Made a 10k 401k w/d this year. Thinking of putting in new patio doors. Should I consider making that transaction before the end of this year?

    • ANSWER:
      No. The penalty still applies. So does the tax credit, if you qualify.

23. QUESTION:
    what would make the penalty on cashing in 401K exempt?
    We used a portion of our 401K cashout for expenses associated with our new home purchase, is this portion exempt from the penalty? What items involved in a new home purchase would make us exempt from this penalty?

    • ANSWER:
      As I understand, you can avoid penalty if you can prove hardship. For example you lost your job and are in danger of foreclosure. Or had major medical expenses. You might have looked at borrowing from it instead. You repay at 9% interest, but it is interest you pay to yourself.

      One way to look at it, depending on when you took it out, with the market meltdown, you may have actually lost less by taking it with a 10% penalty, than you might have lost had you left it in. A lot of people right now, would gladly have forfeited the 10% penalty, compared to what they lost in the market.

24. QUESTION:
    401k to IRA account without penalty for buying first time home?
    I am leaving an employer with approx. ,000 in my 401k plan. If I roll over that money into a IRA and use it to purchase my first home will I still be subject to the 10% penalty? I realize I will be paying the taxes on these funds. I’m not retirement age yet…only 47 right now.

    • ANSWER:

25. QUESTION:
    If you are laid off from your job can you withdraw funds from a 401K without penalty?
    Is there an age limit? I want to pay off my mortgage.

    • ANSWER:
      unfortunately not ! U can withdraw money, but a pretty high penalty must be paid and on top of that taxes to the government. I work for a bank, so i feel i have a pretty good handle on that. If you are in desperate need of money u got to do what u got to do.

      Let me know if you need further assistance

      vitozerilli@gmail.com

      Sorry to hear that btw.

26. QUESTION:
    What is the penalty for taking out a 401k early withdrawal?
    I am in my mid 20”s, I live in california and I am single. After penalties, federal tax, and state tax. How much would I have for myself. if lets say my 401k is 10,000 dollars. The reason is because I might be laid off and might need to tap into my 401k to support me.
    To add additional details, I make 40-55 K a year. hope that helps.

    • ANSWER:
      The penalty is payment of taxes on the amount withdrawn plus an extra 10% penalty…figure on seeing ,500 or less of that ,000

27. QUESTION:
    Changing your 401K to a IRA has a penalty?
    I changed my 401K to a IRA account (the entire ammount) in 2007 and now when i do my taxes for 2007 I get credit for only ,000.00 and get a 6% penalty for the rest? I was told there was no penalty

    • ANSWER:
      You are filling out the software wrong.

      The money going into the IRA is old money from the 401K. It’s not taxable as a rollover.

      You answered the questions as if this was NEW money, which has the ,000 limit and the excise tax on excess contributions.

28. QUESTION:
    Is there a penalty for taking money out of a 401k for a Divorce?
    I am in the middle of a bitter Divorce and I need to take out my 401k money to pay her so I can keep my house and pay bills. Under this circumstance do I qualify for a hardship so I dont have to pay the 10% penalty?

    • ANSWER:
      No, that does not qualify as a hardship. You will have to pay the penalties for early withdrawal.

29. QUESTION:
    Is Obama going to make it so that people can withdraw ,000 from their 401k without penalty?
    when he was running for president he said he would do this. Is he still?

    • ANSWER:
      If he does, it will have income limits.
      He only wants poor people to benefit from benefits.
      Poor – less than 31,400 / year – poverty level.
      /

30. QUESTION:
    Can you withdraw 401K without penalty to use as down payment to purchase a condo as a primary residence?

    • ANSWER:
      You can borrow against it to put toward the down payment. Then, repay.

      However, if you do not repay the 401k loan, it will be counted as a withdrawl and you will owe the fees and taxes.

31. QUESTION:
    What is the penalty for early withdrawal of my 401K?
    I am 61..looking to get out of my 401k alltogether..do not want to roll it over into an IRA..I just want to take the money out. What kind of penalty, or tax is involved..and do you only get your vested amount less penalty and taxes…or account value less penalty and or taxes? Any information would be appreciated.

    • ANSWER:
      You can only withdraw, if you’ve left your employer & retired. If you are still employed, not gonna happen. If you are eligible, you must pay state & federal taxes.

      Why not just move to the safety of money markets and/or bonds??

32. QUESTION:
    What is the penalty from the IRS on a 401k withdraw?
    I withdrew my money from my 401k, I already paid federal and state taxes on the amount.What is the IRS penalty? and is there a way around the penalty??

    • ANSWER:
      If you haven’t file your return yet, you haven’t paid the taxes yet. Tax was withheld from the distro just like tax is withheld from your pay but that may or may not be enough.

      The penalty is 10% if you were under age 59 1/2 at the time of the distro. There are a few exceptions such as for total and permanent disability or to pay unreimbursed medical expenses that exceeded 7.5% of your AGI or if you were a qualified military reservist called to extended active duty for 179 days or more.

33. QUESTION:
    I have a 401K that is vested. I plan to go to India and cash it. How to do without paying much penalty and tax
    I have a 401K that is vested for around 100000 US$ and I am allowed to take it after I leave the employer. I do plan to go back to India. Is it possible to take 15,000 $ per year and avoid paying federal and state taxes ( Since Iam out of country and not a resident + it falls with less income per annum). Is there a penalty that I have to pay while taking money out. I will have closed all my bank accounts except this IRA/401K account and so how would I pay the penalty and any taxes that might occur. Please advice.

    • ANSWER:
      The others hit it right on the 59 1/2 age thing but also since you will be out of the country the mandatory withholding goes up to 30%. Yes, by minimizing the distribution amount you can lower your tax but you’ll still need to file US returns to get that extra money back. If you don’t live in the states you won’t have any state tax.

34. QUESTION:
    What penalty will I have to pay for a 401K plan discrimination refund?
    Due to our company failing the 401k Discrimination test, I as a Highly Paid Executive will receive about a ,500 refund in early 2011.
    - How will this affect my taxes?
    - Will the ,500 be taxed as ordinary income?
    - Will I pay a penalty?
    - What should I do with the $$?

    Thanks

    • ANSWER:
      - How will this affect my taxes? it just becomes ordinary income
      - Will the ,500 be taxed as ordinary income? yes
      - Will I pay a penalty? no

      - What should I do with the $$? If you are allowed to fund a Roth IRA and haven’t yet, that’s where I would put it. Otherwise, just invest it.

35. QUESTION:
    Can I deduct from my 401K to pay taxes due to the IRS without a penalty?
    I owe the IRS 7K for taxes this year. The money I owe is for taking an early withdrawal from our 401K to fix the bathroom. I’m not sure it counts as a hardship, but the bathroom was mold infested and needed to be gutted everything replaced. Can i take more money out of my 401K to pay the taxes due and not have to incurr another penalty?

    • ANSWER:
      Taking money from your 401k means double tax. You get taxed everytime you borrow. Remember when you pay it back and take it during retirement, you get taxed again!

36. QUESTION:
    Can I take out my 401K to pay off my student loan without 10% penalty?
    I just graduated from college this May and the student loan is due this November. The 401K I had with my previous employer (1999~2005) is about 10K and my student loan is about 11K. I am thinking about withdrawing the fund to pay off my student loan. I am sure I can do that but I am not for sure that I won’t get a 10% penalty. I need professional advise, please help.

    • ANSWER:
      Dude, don’t do it. Just pay off your student loans the regular way, with monthly payments. You’ll need that 401K when you retire. Don’t spend it. If you spend all of it, you’ll have to spend a lot of time rebuilding it, of course, minus the interest you’d have gained during that period. If the IRA has larger interest than the student loan, you’d have to be an idiot to withdrawal it.
      If you do decide to withdrawal: if it is a Roth IRA, you can withdrawal only what you have put in, not the interest. (In other words, not everything). If it is a regular IRA, don’t withdrawal anything, but consider turning it into a Roth IRA. (They’re better.)

37. QUESTION:
    How can you draw money out of a 401k without huge penalty’s?
    I have had it for seven years. I realize I need to wait until next year because my income this year is high. But I am thinking about taking some time off next year and my income will be a lot lower.Give me some great tips. My son is colledge so I know I can use some for that.

    • ANSWER:
      Covert your 401k into an Immediate Annuity with a Life option and receive monthly income for life. This will avoid the 10% penalty. Only do this if you are your 50 or older.

      Take out Student Loans for college tuition and you make the payments for you son. Then maybe in the future when he matures and is making a ton of $$$ you son will volunteer to take over the payments for you.

38. QUESTION:
    401K withdrawl Penalty -Does that still apply to a downpayment for a home?
    If I want to put a down payment on a home and want to use some of the money from my retirement plan, will I still be penalized?

    • ANSWER:
      yeah unfortunately an early withdrawal is an early withdrawal no matter what the reason

39. QUESTION:
    I need to take a distribution from my 401K. What can I expect as tax & penalty?
    I need to take a distribution from my 401K due to a financial emergency (unemployment) and need to understand what i will owe the IRS out of that money. I know there is the 10% penalty (can that be waived if one has had to endure unemployment hardship?) and a tax amount. Is the tax going to be per my individual tax rate for is it a fixed amount?

    • ANSWER:
      The tax is whatever your bracket is including the distribution as income, and sorry but no the penalty can’t be waived.

40. QUESTION:
    in a divorce, getting part of 401k, what is penalty for just taking the $ rathr than rolling it over?
    i will have also been married > 6mths of the year, so how wld i file….i am having to continually take out loans to pay for marital debt as well as lawyer fees, so the cash is what i need. How long does it take for the process of actually getting the $ from the 401k? I live in GA…

    • ANSWER:
      If you take a distribution from the 401k, you will pay income taxes plus a 10% penalty unless you meet an exception such as being over age 59.5.

      There is no penalty or tax when a 401k is split into two accounts because of the divorce agreement. But you have to keep it in the account to defer taxes and avoid the penalty.

      If you are divorced on 12/31/2008 you are considered unmarried for the entire year. Your filing status would be single or head of household if you had a dependent child living with you.

41. QUESTION:
    Is this a legitimate way to withdraw 401k w/o early distribution penalty?
    I’m going thru economic hardship right now (no job, no income). I have some money saved up in 401k but I really don’t feel like paying the 10% penalty.

    If i roll over my 401k into Roth IRA (of course, I know that
    ‘s a 30% tax event), then do a complete distribution from that, I can avoid the 10% penalty. Anyone know if I can get in trouble for doing this?

    • ANSWER:
      You will have to pay dearly for pulling it out.

42. QUESTION:
    How early can you withdraw your 401k without a 10% penalty?
    I’m a young adult and I don’t have a 401k. I’m just trying to know.

    • ANSWER:
      Age 59-1/2 si when you can make withdrawals without the penalty. Still have to pay the income taxes tho.

43. QUESTION:
    Is the penalty I paid for early disbursement of my 401K tax deductible?
    Is the penalty that I paid to the IRS for early disbursement of my 401k last year tax deductible this year?

    • ANSWER:
      I am sorry to say it is not. The penalty is an additional tax when you file the income tax return for the year of the distribution. This is the only impact on any income tax return for the 10% penalty.

      Laura H – H&R Block – Senior Tax Advisor 5
      **This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided.

44. QUESTION:
    As A full time student, is there anyway that I can withdraw from my 401k and not pay the 10% penalty?
    I’m in law school (and haven’t taken any related classes yet unfortunately) and I would like to withdraw from my 401k. I understand that I would have to pay the 20% tax on the funds, but is there anyway out of paying the 10% penalty?

    • ANSWER:
      If you have terminated employment with the business who holds your 401K then you can take a lump sum distribution of the entire 401K (and you should because the fees are probably eating you alive) and use a direct rollover to convert the 401K to a traditional IRA.

      If the 401K was a Roth 401K, then you would use a direct rollover to convert the Roth 401K to a Roth IRA.

      You can withdraw from a traditional IRA and use the funds to pay for qualified higher education expenses without the 10% penalty. The percentage of regular income tax is likely to be less than 20% if you are a full-time student. I think you’re getting that confused with the withholding rate, which you can waive in any case.

      You can withdraw funds from a Roth IRA without paying taxes or penalties if you leave the earnings intact and only withdraw the account portion that represents your contributions (on which you have already paid taxes, IF your 401K was a Roth 401K).

45. QUESTION:
    What is the earliest age a disabled person may withdraw from a 401k account without penalty?

    • ANSWER:
      Form 5329 EXCEPTION CODES: 03 Distributions due to total and permanent disability.

      So, if you can prove with doctor’s letters that you are totally and permanently disabled, the penalty is waived *whenever.* You still have to pay income tax, so you’d want to take the money out gradually rather than all in one year. If you became disabled in 2010 and stopped working, aim to start taking the money out in 2011.

46. QUESTION:
    Can I transfer my company 401K savings to a ROTH 401K w/o penalty?
    Im just not getting the returns I would expect from the 401K plan I have with my company and feel I could benefit from rolling over the money into something else. Any suggestions would be greatly appreciated. I want to do this without incurring any penalties.Thanks

    • ANSWER:
      Actually..

      Here’s a link.
      Looks like the only thing you can convert to a ROTH IRA is a traditional IRA.

47. QUESTION:
    Is there still a penalty assessed when cashing out your 401k if you are using it to pay off student loans?
    I am wanting to use my 401k to pay off old student loans, but I don’t want to be slammed with penalties. What is the best option for me? Any suggestions will be helpful!

    • ANSWER:
      I’m not a financial advisor, so you should check on this, but I believe that you will pay early withdrawal penalties plus income taxes at your current base rate on whatever you take out for whatever reason before you are 59 1/2.

      You can take a loan against it, but you’ll have to pay that back. I think you can also divide the entire value by how many years you likely have left to live (from actuarial tables) and take annual “substantially equal payments” without penalty. All in all, very, very bad idea to use 401(k) money before you are at least 59 1/2.

      Check the Motley Fool for sound advice on paying off your loans.

48. QUESTION:
    Can I get a second loan from my 401k without a tax penalty ?
    I already have a loan but have run into to some tough times and now Im faced with having to get another loan. I have been told that I may get a tax penalty for the second loan , is this true ?

    • ANSWER:
      You need to talk to your plan administrator. 401K’s only allow you to take out a percentage of your balance temporarily. You have to pay it back with interest in a certain time frame. So, you need to talk to your plan administrator and see what you can do. If you take the money out and don’t pay it back, you are subject to 10% tax penalty and have to pay income tax on top of that!

      So, get the right advice-talk to the plan administrator, who knows exactly where you stand.

49. QUESTION:
    Is there a tax penalty for taking a 401K loan and investing it into an IRA?
    I am considering taking out a 401K loan to invest in an IRA in order to lower my adjusted gross income so that I may take the first home buyer tax credit that was introduced last month. Is there a tax penalty for doing this?

    • ANSWER:
      Only if the IRA stands for Irish Republican Army then not only will you have the Revenue service after you , Homeland Security will be showing up too.

50. QUESTION:
    On this rough economy why hasn’t the government allow us to use our 401K and no tax penalty?
    I have tons of money in my 401K i would love to use that money to buy new appliances and possibly a new car, why Bush doesn’t pass a stimiulus agreement to allow people to use their 401k and not be penalized?

    • ANSWER:
      Because the government is not going to encourage you to do something this stupid.

      Hint: the people in foreclosure on their homes all used the same short-sighted thinking you do..