401k Withdrawl

Frequently Asked Questions

1. QUESTION:
   401k Withdrawl?
   Is there a way of removing the money from your 401k beside a loan if you are still employed at the company.

   • ANSWER:
     Only if you want to pay a butt load of taxes.

2. QUESTION:
   Quitting job to go to school can anyone help with 401k withdrawl for extra $?
   I am planning to quit my job to go back to school to get my Masters and I was told I could take out my 401k for some extra $. How does this work? I have only been at this job for about a year. Is it even worth it? Please help!

   • ANSWER:
     If you worked there a yr, you probably didn;t save very much in the 401k and withdrawing it after you leave – you’ll lose a good chunk of it to taxes and penalty – anywhere from 20-35% probably depending on your federal tax bracket

3. QUESTION:
   What are the tax penalties for early withdrawl of 401k?
   After a year of unemployment and now taking a job paying significantly less than I previously made, I’ve finally decided to withdrawl part of my 401k to try to get myself straightened up financially. I know they will withhold 20% for taxes straight away, but what are the other penalties for early withdrawl?
   Thank you everyone….

   If I’m able to find a better job and put the same amount of money into a new 401k or IRA, will the penalty be adjusted accordingly?

   • ANSWER:
     The total tax hit will depend upon your total income for the year.

     The actual penalty is 10% but you also have to pay income taxes on the withdrawal (typically 15% or 25%) plus state taxes (if applicable).

     For most people, the 20% withheld isn’t quite enough to offset the entire tax bill.

4. QUESTION:
   Are capital losses considered when taxing an early 401k withdrawl?
   If I have a rollover 401k that has decreased in value from ,000 to ,000, and I withdraw the balance, how will the capital losses be considered when taxes and penalties are charged?

   • ANSWER:
     The only time losses are considered is when you contributed post-tax money to the 401(k). People rarely do this because post-tax contributions don’t save taxes when contributed like pre-tax contributions do. If you pull out your entire 401(k) and you contributed over ,000 post-tax, see a tax-preparer or accountant on how to handle it. Otherwise, if all of your contributions were pre-tax, you’ll pay through the nose. Do whatever you can to not pull out the money. If you are pulling it out because you are unhappy with the people handling the 401(k), roll it over to an IRA instead.

5. QUESTION:
   Can I avoid paying taxes on a 401k withdrawl?
   I’m refinancing one of my investment properties and i want to know if i do a 401k withdrawal but use that money towards paying for the closing costs and paying down the principal balance on the investment property. I know I will be subject to the IRS 10% penalty however can i deduct the amount paid to reduce principal and cover closing costs.

   • ANSWER:
     I recall like 10 years ago, that people had a way to use an IRA for investment in “investment” property. The rules and methods were complicated though, as was the accounting. I am not sure if that applies to a 401(k). At least you would have to convert your company 401(k) to a self directed 401(k) if the company allows that. Mine did.

     But it will take some work. You should consult a tax and accounting professional. It would be worth the savings if it is possible.

6. QUESTION:
   Is 401k withdrawl to buy 1st home exempt from early 10% withdrawl pentalty and any other taxes?
   and if so how do i do it on my taxes?
   problem is i took a 401k loan out and then lost my job and money was spent on down payment of house

   • ANSWER:
     Not exempt…1st time home purchase is only exempt up to first ,000 from an IRA. 401k is not afforded that exemption. Fact that you took it as a loan and then subsequently defaulted is irrelevent.

7. QUESTION:
   401k withdrawl for divorce: Is it common? allowed without penalty?
   401k withdrawl for divorce: Is it common? allowed without penalty?

   • ANSWER:
     Check out this page I found on it…

     “There is one piece of good news in this situation. The money removed from your account for a properly processed QDRO is not subject to the 10 percent early withdrawal federal income tax penalty-even if you and your alternate payee are both younger that age 59 ½. Unfortunately, if the QDRO is not properly established, you will be subject to the 10 percent early withdrawal federal income tax penalty. In the midst of divorce and the distribution of your account to other parties, the last thing you want to face is a tax on money that is no longer yours.”

8. 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

9. QUESTION:
   Is it true i wont pay penalties on early 401k withdrawl if the company i work goes out of business?

   • ANSWER:
     No unless you are over 55. You will still have to pay taxes on the money. If the company does go out of business you may have trouble accessing your account. I would be printing off statements weekly in case there is a problem. Usually there is not but I have heard horror stories.

10. QUESTION:
    401k withdrawl and unemployment benefits in ohio?
    If I withdraw my 401k will if affect my unemployment benefits?

    • ANSWER:

11. QUESTION:
    How much money am I looking at when I withdrawl my 401k?
    I know of penalties and such. Please this is not a question of wiether or not I should or shouldn’t but rather a question of how much will I get.

    401k balance. ,050
    Pension ,726
    David are you sure its only 30%? Ive heard numbers up to 60 before.

    • ANSWER:
      20% of your 401k is withheld for taxes.

      if you are not 59 1/2 yrs old there will be a 10% penalty on your tax return.

12. QUESTION:
    Are capital losses considered when taxing an early 401k withdrawl?
    If I have a rollover 401k that has decreased in value from ,000 to ,000, and I withdraw the balance, how will the capital losses be considered when taxes and penalties are charged?

    • ANSWER:
      Doesn’t matter what they have gained or lost. What will be considered is how much did you personally invest in it. For example if you personally paid 12,000 into it and now it’s worth 11,000 then it would be a ,000 loss and no penality. If you paid 10,000 into it and now it’s worth ,000 then you would have a ,000 gain and a penality of 10% or 0 for withdrawing it early. Anything your employer paid into it is considered income to you. So if you paid ,000 and your employer paid ,000 and it’s worth ,000 then you would be penalized on ,000. ,000 that your employer paid and ,000 profit. I closed my IRA out and put it into CD’s. That way I can move it when I want to if interest rates goes up.

13. 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.

14. QUESTION:
    I want to withdrawl from my 401K but not sure how to?
    I have had several different jobs in the past 4 years and I don’t know any specific company that my 401K is from..is there a number or website that I could call or go to that could tell me overall exactly how much 401K I have and how to withdrawl some of it?

    • ANSWER:
      call the former company(s) that you worked for and tell them your story – say you can’t remember what investment company handled the 401k plan – then call those investment companies – they should be able to find you by your social security #

15. QUESTION:
    What are the penalties and taxes for early withdrawl/default on 401k loan?
    I left employer with a balance of approx. 4,000 on a 401k loan. What are the penalties and taxes that will need to be paid for this tax year?

    • ANSWER:
      As long as you don’t withdraw that money and invest it in some type of IRA product, you don’t owe any taxes. If you withdraw the money, then you will owe income taxes on it as well as a 10% penalty.

16. QUESTION:
    Tax question regarding early withdrawl from 401K?
    I took an early withdrawl from my 401K in 2009. It was for 6, however I only received 7. Where on the 1040 form do I enter the 9 I was charged? Also I don’t have the paperwork in front of me but I am assuming the 9 was taxes and or penalties, but I’m not sure.

    • ANSWER:
      You must WAIT till you get Form 1099-R from the 401(k) custodian. It will show the withdrawal and any taxes withheld.

17. QUESTION:
    my house is in forecloser. i wondered if it would be smart to withdrawl my 401k?
    my husband quit his 50 thousand a year job. i left him. i can’t afford the house payment. would it be smart to withdrawl my 20000.00 401k and try to refinance

    • ANSWER:
      DON’T EVER THINK ABOUT CASHING OUT YOUR 401k. You will owe thousands of dollars in taxes. Plus you need to think about your future. Yeah things seem dark now but just imagine when you get older and it’s time to retire. Get a second job while your trying to sell your house. Withdrawing from your 401k is never a option.

18. QUESTION:
    Are there any state (NY) penalties for early withdrawl from 401k, or only the 10% at the fed level?

    • ANSWER:
      No, but there is both state and federal income tax (in addition to the federal 10% penalty).

19. QUESTION:
    What is the penalties for an early withdrawl of you told 401K and company cash pention?
    Due to the outsourcing of my companies manufacturing business (IMATION). I am being laid off, but as part of my severance package I am able to withdraw my cash pension, plus whatever I contributed to 401K which totals around ,000.00. What would i end up paying if i withdraw all this and not roll it over?

    • ANSWER:
      YOu should roll over your pension and 401 k to a qualified plan. Your bank’s financial advisor can help you with this. Do not cash them out. You’ll pay up to 50% in taxes and penalties by the government. Ask an advisor before you do anything. They are free to you initially. Good Luck.

20. QUESTION:
    Is there a limit to how much you can withdrawl from you 401k for the down payment on your first home?
    I know it is under the “hardship” clause and Fidelity knuckleads told me k per person, but I cannot find any confirmation of this limit. Pls advise.

    • ANSWER:
      Fidelity are a bunch of knuckleheads who’ve somehow conned most major businesses into putting their 401k business with them. In return they have to toe the line.

      Anyways, there is no 10k limit for hardship withdrawal. As long as you are meeting the criteria for hardship distribution (and you are, i.e. purchase of primary residence) then there should be no problem. Normally a hardship distribution can only be for the dollar amount of the financial hardship. There is essentially no limit, except the funds that you have in your account that are available to you. With the home purchase your hardship amount is generally your down payment and/or closing costs. So, you should be able to request an amount that would cover these costs. Obviously you will have to show proof though, which would be a mortgage application or seller’s agreement that shows the costs that you are having to pay out of pocket (i.e. can’t be included in the mortgage note).

      The only way there might be a 10k limit is if it is some sort of plan imposed limit. This means that your company might have drafted their plan to limit the hardship withdrawals. Get a copy of the Summary Plan Description and read what it says about hardship withdrawals.

21. QUESTION:
    I want to make an early withdrawl from my 401k – can I file a seperate tax return, so my husband does not know
    I cannot take a loan because I no longer work there. We file a married joint return every year and my husband does the taxes. I want to pay off some debt and I do not want my husband to find out about it. What can I do?

    • ANSWER:
      Don’t you think your husband will wonder when you don’t file jointly? You can’t file a joint return AND a separate return. Try being honest.

22. QUESTION:
    Can you early withdrawl from 401k when you buy a house without penalty?

    • ANSWER:
      No, you will still get penalized.

23. QUESTION:
    How can I withdrawl my funds from my 401k?
    I owe roughly 80k on my credit cards. I’m tired of making payments which will only cover int. I was hoping to pay them off by making a withdrawal from my 401k. I had already taken the maximum allowable loans available. I tried calling to them askedif I could make the maximum allowable withdrawal, but they say paying credit cards is not a hardship. Well if I can’t pay them off, I might have to file for bankruptcy. Any help or advice would be greatly appreciated. Looks like the only way for me to do the withdrawal is if I quit my company.. I can quit my company and pay most of my credit card, but then I’m out of a job????

    • ANSWER:
      If you make the withdrawl, you will pay a penalty (usually about 10% of the total amount) on top of any taxes payable on the principal and interest taxed at ordinary income rates. It’s a tough decision to make because you are losing all that savings and being penalized.

      Can you negotiate with your credit card companies and lenders first to work out a payment plan? Try talking to some debt counselors first before you make this rash decision.

      But be careful many debt counselors may be trying to profit from your problems. I am attaching a link to the FTC website that talks about debt management agencies.

      http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm

24. QUESTION:
    When can you withdrawl money from your 401K?
    We are going to start doing the 401K plan at my husbands work. I am curious about the rules of withdrawling money from a 401K. Can we use it for emergencies? Will we be penalized?

    • ANSWER:
      You won’t be penalized if you take out a loan against your 401K – but you may if you actually withdraw from it. You usually can take out a hardship loan w/interest that is added to the 401K. Check with the Loan Administrator and HR personnel for specifics. Some plans will allow 2 loans if there is enough in the plan. What I like about the loan is that you pay yourself back the interest and not a finance company -like a extra savings account.

      Withdrawing is a more seirious financial matter – depending on the plan, I believe the age is 59 1/2 – if you withdraw before that time regardless of circumstances, there are heavy penalties.

25. QUESTION:
    will 401k withdrawl and affect unemployment benefits in ohio?

    • ANSWER:
      It should not have any impact on your unemployment benefits, but it is a bad idea for so many other reasons.

26. QUESTION:
    what kind of tax penalties will a 00 withdrawl from my 401k cost?
    This will not be a loan either. Any estimation for state tax would be helpful too.

    • ANSWER:
      If you are less than 59.5 years old, be aware that there is an immediate 10% tax on the amount withdrawn from your 401k, so your 00 is now 00. (I’m assuming that you don’t meet the medical hardship requirements that may hold off that penalty…)

      Then, since it is not a loan but a withdrawal, the 00 in your 401k (assuming a traditional 401k and not a Roth 401k) is considered as income to you for the year. So, the 00 will bump up your yearly income/salary by 00, and you’ll be taxed on the added “income” by both federal and state. (You pay into the traditional 401k with pre-tax dollars, so when it comes out you have to pay income taxes on it). The withdrawal could bump up your tax bracket… So, come tax time, expect to pay somewhere around 20-30% of 00 in taxes (so about 00-00 in taxes).

      After all that, your 00 withdrawal only nets you about 00-00.

      Meanwhile, you have the opportunity cost of taking money out of this savings account, where the full 00 could be earning you money. (You could be getting a few +% if your 401k funds are safely in money market accounts or CDs, and you won’t be losing money…) Also be aware that a 401k account cannot be touched by creditors, such as if you go through bankruptcy, but the cash that you take out can be…

      In general, it is a poor choice to take money out of your 401k fund when you are not in retirement…

27. QUESTION:
    Should I file for bankruptcy or get a hardship withdrawl from my 401k to get out of debt?
    I owe about 5k in credit cards, 4k in personel loans, 15k on my truck, which i’m willing to get rid of the truck since I have another reliable source of transportation.

    • ANSWER:
      You do NOT owe enough to file bankruptcy. I’m not saying that you can’t but you can still manage these bills pretty good without filing for bankruptcy. Maybe get a second job? You can get the money from your 401K but you will be penalized and have to pay the taxes on it and that would be about 30% of what you took out.

28. QUESTION:
    Do I have to tell my employer that I want to withdrawl from my 401K?
    Or can I just call the Company that it is held with?

    • ANSWER:
      If you are making a hardship withdrawal, your employer may have to approve it. It depends on how your plan is set up.

29. QUESTION:
    Is 401K taxed immediately and automatically when you withdrawl, like a normal paycheck?
    I have a foolish question to ask. I know that 401k is taxed just like regular income. However, what I’m sure about is WHEN it gets taxed. Does it automatically get taxed the moment you withdraw it (like how taxes automatically get taxed before you get the actual check with the post-tax amount)? Thanks!

    • ANSWER:
      No. You withdraw money from your account. You can choose to have taxes withheld, but that’s up to you. Another way to get money out of your 401k is to get a 401k loan.

30. QUESTION:
    if you withdrawl your 401k early (very small amount invested) due to hardship do you get your money the same?
    day, or about how long does it take to get the money?

    • ANSWER:
      Mine takes about 3 weeks guess it depends on who the bank is

31. QUESTION:
    Can you redeposit into an IRA/401k after making a withdrawl?
    My girlfriend withdrew money from her retirement account for a downpayment on a house, however the house deal fell through and she had to find a place and was forced in to renting. She says she is not allowed to redeposit the money and will be taxed and penalized heavily. is this true. She did a withdrawl, not a loan against. What can she do to avoid the taxes.

    • ANSWER:
      She might contact her IRA or 401k provider & see if anything can be done. But I tend to doubt it. She did a withdrawal, and not a loan. That means her account has been closed. And I believe there is also a 60 day limit (by the fed’s) to deposit that money back into an IRA. Otherwise taxes are due – federal, state, and there’s also a 10% early withdrawal penalty.

      If you can not afford a house without tapping your retirement accounts, then you can not afford a house.

32. QUESTION:
    should i withdrawl from my 401k savings to pay for my dept?
    i owe over 9000 in depth, and have 10000 in 401k should i withdrawl

    • ANSWER:
      Rule of thumb no since your 401K is earmarked for your retirement and a penny saved now is worth more than a dollar in the future with compound growth. Credit card debt is considered short term debt whereas your 401K should be looked at as a nest egg and a portion of your income for later.

      If you are still with your company and your job is safe you can borrow the money from your 401K and repay it with interest which is a wise choice for many especially if you have high interest on your credit card accounts. By paying it back with interest your also help your retirement the sooner you pay it. If you go this route only repay the credit debt with high interest charges – the lower interest rates you can repay back more slower. By using your 401K to repay the credit debt in sense you become the bank.

33. QUESTION:
    early 401k withdrawl?
    I took an early 401k withdrawl(lincoln financial). How long till it is direct deposited into my checking account.?

    • ANSWER:
      If you took an early withdrawal, before age 59 1/2.
      You will be charged 20% in tax, and 10% in penalty.
      on top of your yearly “gross income.” <}:-{(

34. QUESTION:
    Can I withdrawl all my money from my 401k?
    I am not working for the company that I had my 401k with anymore and still have not found a job. Can I take all my money out. I know I will be panalyzed. Just wondering if anyone knew about this.

    • ANSWER:
      Whenever you take money out you will be adding it to your income for that year–and paying a 10% penalty as well.

      Invariably, people don’t put enough aside for taxes and owe big time the following April.

35. QUESTION:
    401K withdrawl at 55 years Old ?
    I plan to retire at 55. I have about 0,000 in a 401K and will be using it to to add to a small pension until I am 60 when my pension jumps higher. I understand I can take out monthly payments for 5 years or until I am 60 without penalty as long as I am retired. Is this true ?

    • ANSWER:
      You will pay income tax on withdraws in any case. Exceptions to the 10% penalty for withdraws before age 59 1/2 include:
      #
      Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55,

      Feel free to read the IRS publication yourself, but it looks like you are OK as long as you turn 55 by the end of the year you leave the company and take the money after you leave. I became aware of this exception while attempting to document my belief you would be subject to the penalty.

36. QUESTION:
    do they take state taxes out on a 401k withdrawl on top of federal taxes?

    • ANSWER:
      Depends on your state.

37. QUESTION:
    I took out a 500.00 hardship withdrawl on my 401k?
    I had them tax it at 15% how do i file this on my taxes
    The hardship was for paying rent while in hospital.

    • ANSWER:
      The 0 goes on the pension line. It’s added to your income and can increase your tax.

      The penalty goes on the 1040 on the back in the extra tax section. What was the hardship? You might qualify for an exception.

      The $ withheld gets added to any other withholding.

38. QUESTION:
    401k withdrawl for nonstandard home purchase? Can I get money for a primary home purchase with owner finaning?
    My brother is willing to sell me a nice house that he and his wife just bought for a great price. However, they want a large down payment. Is it possible to take out a 401k withdawl for primary home purchase with any type of nontraditional home purchase? Would contract for deed, owner financing, lease option, “subject to” type mortgage assumption, or any other nontraditional sales technique qualify for a 401k withdrawl?
    I plan on paying my brother for 3-5 years and then getting a regular mortgage to “fully” buy the property.
    I wonder how I could have worded this question so I actually got answer to the question does alternative financing work for these types of withdrawals? Not one person even guessed yet I have several “answers”.

    • ANSWER:
      I agree with other answers. You can’t invest in your own residence with your 401k without withdrawing the money with penalty. While IRA rules recently relaxed to allow real estate investment, one strict guideline is that you and any immediate family members cannot reside in the house that was invested in. A loan from your 401k is an option that you should explore, but each 401k plan has its own rules on loans.

39. QUESTION:
    is there a limit on your 401k withdrawl?
    how many times can you withdraw from your 401k in a year

    • ANSWER:
      401k withdrawals are not limited in amount or frequency. You can withdrawal as much as you want as often as you want.

      Any withdrawals you make during the year are included in your gross taxable income for that year. If the withdrawals occur before your age 59 & 1/2, a 10% penalty tax may also apply.

      On the other hand, contributions are limited. For 2009, the maximum you can contribute to a 401k is ,500 per year if under age 50 or ,000 per year if age 50 or older.

40. QUESTION:
    If i roll my 401k over into a IRA can i withdrawl from it?
    Im 36 and leaving my current job and need to do something with my 401k I would like to get my money and lose as little as possible.

    • ANSWER:
      “If i roll my 401k over into a IRA can i withdrawl from it?”
      The simple answer is “Yes”, you can, but not without paying a penalty to the IRS.

      “Im 36 and leaving my current job and need to do something with my 401k I would like to get my money and lose as little as possible.”
      Whenever you leave a job where you had a 401(k) you should absolutely “roll” that money into an IRA. Doing so gives you a much wider array of investment choices. If you need a few bucks to cover bills, etc., you would be best advised to find some other way of finding the cash. But if you have no other assets, you can take money out of the IRA but at your age, you will pay a 10% penalty to the IRS and ALL of the money you take out will be added to your Adjusted Gross Income (AGI) for the year and you will pay taxes on that money at your MARGINAL rate. It is if you got a raise for that amount for the year AND ONLY THAT YEAR.

      It can be pretty costly.

      Seek the advice of a financial professional in your area before taking large distributions from such accounts.

41. QUESTION:
    I cannot withdrawl or transfer funds in my 401k per Principal Group?
    It is suppose to be a fixed income fund but they said if money is moved or withdrawn the fund will collapse. It’s possible in 2010 that some money can be accessed or transferred. It this legal?

    • ANSWER:
      they said if money is moved or withdrawn the fund will collapse.
      LOL, unless you’ve got a couple of billion dollars in there, I doubt the fund will collapse.

      I moved my money from Principal Group, about 1 1/2 yrs ago. But part of my monies, were in time deposit money markets (fixed income). To get a higher return, the money had to be kept in there for 5 years. Once that time period was up, then I was able to move my 401k

      This sounds to me, like your problem. You are not able to move the money, until a certain time period is up.

42. QUESTION:
    what do i need to get a financial hardship withdrawl from my 401k to avoid eviction?

    • ANSWER:
      A letter from your landlord or copies of your eviction notice would probably document the need. Then check with your 401-k plan administrator to see if this qualifies.

43. QUESTION:
    Can we withdrawl money to buy a house from my 401K?
    I have ,000 and found a house for ,000. Can I withdraw the money to buy the house and pay the penalties at tax time, or do I have to pay right away? The house is also in short sale.

    PS I can’t get a loan, my credit score is only 570 and I have too much debt. Thanks for the help.

    • ANSWER:
      Are you sure you want to buy a home right now? 28k is a lot of money for you to save and invest and possibly be able to get an even better deal. 570 is low, but you can bring that up. I bank with USAA and they have a credit monitoring program that you can join. If I were you I would join that and focus on getting my credit up so that when you do go to buy a home, you can (continue to help your credit) when you get a loan for a house and get a low interest rate score. Also, they will probably have some other kind of house buying incentive that you can take advantage of if they are not offering the first time buyer 8k anymore. I say focus on getting your credit together so that you don’t have to use your money like that. Be smart financially … ) Hope everything works out!

44. QUESTION:
    401k Withdrawl penalty for education..?
    I’ve been given notice that my position is being phased out. I’d like to go back to school. Is there a penalty to applying my 401k savings towards my education (tuition, living expenses, etc.).

    • ANSWER:
      Yes. There is no exemption from the penalty for educational expenses. All distributions are fully taxable as well.

45. QUESTION:
    WHERE DO I REPORT A 401K WITHDRAWL ON MY 2010 TAX RETURN?

    • ANSWER:

46. QUESTION:
    401K withdrawl advice?
    I work for a company that has terminated the 401K plan after only a few years. This account only has <00. I am thinking of cashing it in since its not much money and I could apply towards credit card balance and school loans. I realize that I will get the fees plus additional 10% penalty at tax time, but should have several write offs this year to compensate. What is the opinion of some financial people? I know I should roll over to something else, but the money could really help us now..? Suggestions?

    • ANSWER:
      Find another way to pay off your debt. A 401 (k) is meant for retirement, not to pay off old debt. Not only would you be hit with a 10% penalty, you will also have to pay federal and state income tax.

      I would roll this money over into a rollover IRA, then you have the option of a traditional or Roth IRA (preferable). Let your 401 (k) administrator roll this money over into whatever brokerage rollover IRA you choose because if they cut you a check, you will have 60 days to do it yourself.

      http://individual.troweprice.com/public/Retail/Retirement/IRA/Traditional-vs.-Roth

47. QUESTION:
    Early 401K withdrawl?
    I was Laid Off and I cashed out my 401K for the full amount.I had all taxes withheld to prevent from having to pay taxes when I file.Does anyone know if there are any other fees or charges I will have when I file? Is there a special form for people who withdrawn due to job loss or layoff?

    • ANSWER:
      Having taxes withheld does not eliminate the fact that you will have to claim the event on your 2006 tax return. You will receive a form 1099R in the mail that will show you how much was withdrawn (box 1) and how much was withheld and given to the IRS (box 4). The amount withdrawn will be taxable income to you just like any other wages you earned. As if that wasn’t enough, you will owe an additional penalty of 10% of whatever was withdrawn. The only good news is the amount withheld will go as a credit towards your tax liability just like any amount normally withheld from a paycheck (box 2 of your W-2). Your tax preparer or software will ask you if you received any 1099s. Give the information as shown. Under no circumstances (other than rolling over the money into an IRA or other qualified retirement plan) will you avoid having to claim the amount withdrawn as income. There are a few provisions to avoid the 10% penalty, but unless you died or became disabled or were over 59 1/2, you won’t qualify. Unfortunately, the IRS doesn’t consider being out of work as a hardship…..go figure.

48. QUESTION:
    Can a 401K or an IRA account be used to start a business and aviod paying the tax or early withdrawl penalties
    This is to acquire franchise rights and build out a location.

    • ANSWER:
      The only legal method I can think of is the Self Directed Roth IRA will allow you to start for example a Real Estate venture all money in vested and profits made run thru the Roth tax free.

      Also if you do don’t have enough money in you Roth to start you can find partners with a Roth and buy the real estate jointly/partnership (partner 1 owns 50%, partner 2 owns 50%)
      the expenses are then split as well as the profits by the number of partners.

      go to google and search “real estate IRA” will list many companies. www.pensco.com has an e-book you can download

49. QUESTION:
    Should we withdrawl $ from our 401K to pay debt, in order to raise our credit score and raise FICO?
    This would be in order to purchase our first home.

    • ANSWER:
      What can you get with your scores as they are? What will your scores be after you pay off those debts? What financing can you get with those improved scores? Will you borrow from your 401k or simply liquidate it? If so, what are the penalties? If you do liquidate it, will you have enough cash reserves (at least 2 months of your future mortgage payment) to get the best financing?

      Those are the questions I’d be asking a few loan officers. Some have score modelling and can see what the impact of the debt payoff would actually get you. Some don’t or don’t know how to use it properly. Shop around.

50. QUESTION:
    401K Withdrawl question?
    I just left a company after 7 years and that was over two motnhs ago. I contacted the company that handles our 401K plan and they said they still show me as working there. When I contacted my company they said they don’t have to send out my 401K paperwork for 90 days. Is this legal? I am no longer working there and according to the 401K company, they show I am. Can I force our HR person to call them and tell them I no longer work there?

    • ANSWER:
      Your summary plan description would be able to tell you more. It’s entirely possible that a distribution is not an option for a period of time depending on your plan options (sometimes that period of time is up to a year). As an example…a plan is written so as to be a 401(k) plan with a match that is paid quarterly. If that’s the case then a distribution can’t be paid until the match is deposited which likely wouldn’t be until the end of October. The only other option would be to pay the current balance and then pay ANOTHER distribution when the match is funded. Too expensive of a proposition for most companies.