Cashing In 401k

Frequently Asked Questions

1. QUESTION:
   How big is the tax penalty for cashing in 401K stock??
   I’m thinking of cashing in part of my 401K stock pile to pay off debts. I am young enough that I have plenty of time to rebuild the funds before it would be retirement time. My credit is in the toliet and I can’t get ahead!! HELP!

   • ANSWER:
     plan on losing about 60% of the money to taxes and early withdrawal penalties.

2. QUESTION:
   how much should i expect to pay in penalties for cashing my 401k early?
   i am quiting my job in a few months. to be a stay at home mom. i have 17000 in my 401k, i also have a loan for 6,000 out right now. i know there is a 10% penalty for cashing out early, but how do they fingure the taxes you will be charged for it?

   • ANSWER:
     this is how it will be calculated if you process the withdrawal:

     000 + ,000 = ,000 (This will be reported to IRS as income)
     ,000 * 20% = 00
     ,000 – 00= ,400

     00 will be sent to the IRS as a down payment on your federal income taxes. You will get a tax form in the mail in Feb. You will file it and pay any additional income taxes based on your tax bracket and the 10% pentalty. You don’t pay the penalty until tax time.

     Basically, a 20% withholding is mandatory up front for income taxes for the loan balance and regular 401k balance.

     And I’ve never heard of a form to sign to get out of the mandatory tax withholding.

3. QUESTION:
   What is the policy on cashing out 401K?
   Does anyone know what the rules are when cashing out your 401K? I mean how long does your employer have to pay you if you decide to cash it out once you have turned in the paperwork? How would I find out about it if my former employer is not responding to me regarding my 401K?

   • ANSWER:

4. QUESTION:
   How much penalty will I owe at tax time for cashing out 401k early?
   Well I didnt have much in the 401k to begin with and I lost my job recently, so I checked the mail today and there was a check for 578.00 and it said on the stub that federal took out 144.00, now what im wondering is come tax time what penalties am I gonna have to pay on that 578.00 that I took out early?

   • ANSWER:
     You withdrew a total of 2. A mandatory 20%, or 4 was held back for taxes. Regardless of your other income, half of the witholding is the penalty for early withdrawal. The other half of the withholding is for income taxes.

     If you are in the 15% tax bracket, you will owe another 5%, or , in income tax. Similar computations for other tax brackets.

5. QUESTION:
   what kind of penalty’s and taxes should i expect for cashing my 401k under a hardship clause?
   I have roughly 10,000$ in my 401k, i am currently laid off and need the extra money.

   • ANSWER:
     Only you know all your circumstances, age, etc. Call the company that manages the 401K and they can advise you best and give you an exact cost for cashing out.

6. QUESTION:
   Where Will I Get Tax Info From Cashing In 401k Last Year?
   Cashed in my 401k last year. Do I have to wait for a tax paper for it or can I just do it through turbotax inputing the numbers?

   • ANSWER:
     You need to wait for the 1099R. It will have with holdings and the ein number that you will need to efile

     Christine EA Master Tax Adviser
     Check out my profile

     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 have provided.

7. 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.

8. QUESTION:
   Cashing 401K while still employed?
   I have a client who has gotten behind on her mortgage payments by a few months. She is unable to refinance at this time due to pre-payment penalties on her current mortgage sending the payoff over equity. She wants to cash in her 401K, and yes she understands the very high penalties/taxes/fees involved. Her employer will not allow her to do so unless she provides a letter of forclosure for a hardship loan against the 401K. She would prefer her home not go into forclosure at all and just wants to pay it now. Every day that passes, she is charged more fees from her mortgage company for being behind. What can she do?
   Well, that’s what I thought too. However, her employer told her she could borrow against it, but only if she provided a foreclosure letter. The reason she doesn’t want to wait on that letter is the amount of fees she is racking up each day, plus whatever fees she will incur once the foreclosure process has begun.

   • ANSWER:
     Unfortunately, only way to get $$ out of a 401k is through a loan and/or a hardship withdrawal. Sounds like your clients employer is using the “Safe Harbor” standards that are used to determine hardship necessity. Those rules say that it is ok to provide a hardship withdrawal for “payments to prevent eviction from or foreclosure on a mortage on the participant’s principal residence”. They say nothing about it having to already gone into foreclosure. I would say that your client should request a notice from the mortgage company showing that she’s in arrears and how much time before the company plans to foreclose. She can explain to the company that she intends to get a hardship withdrawal to pay up her mortgage but needs that notice.

     Keep in mind that this hardship withdrawal may be limited only to the contributions that your client put into the plan and may not be the entire account balance. Many times people think they have access to more funds than they really do.

     Lastly, you say she’s aware of the fees. But most are not aware of the rules. Hardship withdrawals have a 10% penalty associated with them. This is not applied when the distribution is taken, rather when your client files her tax return for the year. Your client can increase the hardship amount requested by the 10% penalty. Make sure she does this if the cash is available. Additionally, she can elect the amount of withholding taken from the distribution. If she doesn’t elect they will withhold 10% and this won’t be enough. She can gross up the distribution for this too. So, If she is behind 5k in mortgage payments and is in 20% tax bracket she should gross up her distribution to ,144 and have the extra 2,144 withheld for taxes. That way she won’t be suprised next April.

     Added after: That letter from mortage company can be faxed…hardship withdrawals can be expedited with checks sent overnight. If she’s polite and pushes she can have cash in hand in 3-5 days. Key though is to get that letter. Do not say “is there any other way” The employer is only allowing distributions and loans for hardship reasons. So your client has to prove the hardship. Only other way is to quit and that may take longer than jumping through this little hoop!

9. QUESTION:
   Cashing out on 401K & Pension Plan in CA state. Will fed tax apply if my income is under K for the year?
   I have K in my 401K, considering cashing out to pay credit card debt of K. My income for the end of year is under K however I am married and file joint. Will i be taxed? I know the penalty will apply. Is it any different if I file Married filing seperate? Thx!!

   • ANSWER:
     It’s taxed as ordinary income plus the 10% penalty regardless of your filing status. Also, the distribution itself is subject to withholding at 20% so you won’t get the full ,000 if you cash it out..

     Also, if you are still working for the company that sponsors your 401(k) you won’t be able to take an in-service distribution for that purpose in most cases. You’d have to quit your job to cash out the 401(k).

10. QUESTION:
    Is it worth cashing out my 401k to pay for college?
    I’m almost 30 and have over ,000 in my 401k. I want to quit my full-time job, find a part-time job and go back to school full-time. Is it worth cashing out my 401k?

    • ANSWER:
      most would advise that cashing in the 401k is never a good idea. there are a few times when it might be (losing your home), but i don’t think in your case it is.

      first of all, there is a HUGE tax penalty-if you were going to cash it, wait until you have been unemployed for a year or more (cehck with a financial advisor on the specifics here) and into a lower tax bracket. One of the benefits of a retirement pln is that the money is not taxed when you put it in and are employed, but taxed when you take it out, presumably as a retiree in a much lower tax bracket.

      secondly, you not only lose this little nestegg, but it is working to earn more money-so you also lose those future funds as well.

      school loans look like a better option-low interest and liberal pay back terms. you will pay less in interest than the 401k is earning (most likely).

      it is tempting to tap into the 401k but overall, if there are other options you should strongly consider them.

11. QUESTION:
    fafsa and cashing 401k?
    Due to some personal reasons I had to leave the US and right now my son and I reside in Russia. My American husband filed our taxes and I don’t have them with me. I am trying to fill out fafsa application without looking at my taxes.
    So, here is my questions
    1.my husband cashed 20k from his 401k. Where do I put it on Fafsa?
    2.Do you think I can qualify for some kind of financial under following conditions: I am an independent student; we are from California, there are three people in our family, we made only 33k this year

    Thank you very much for your help

    • ANSWER:
      Your situation is a difficult one, you need to contact your local school that your planning on attending and speak with the manager of Financial Aid because of your issues. You do have to show all incomes, there is a portion of the application that asks if you have them, your taxes will show that they were cashed in, but if you have a legal seperation and the time frame when you filed that separation will have bearings on your FAFSA, don’t give up because there is ways, you do need to talk with financial aid office in person, or you can do it by e-mail or phone. But I would contact them so you don’t make a mistake on your application that will hurt you. Good luck

12. QUESTION:
    How long to recieve money after cashing out my 401K?
    I have ,500 in John Hancock 401K. I’m leaving my job to start school in August. How much and how long will it take to recieve this money? I know it’s stupid, but I’m young enough to recoup. My job doesn’t allow any type of withdrawals unless you end employment. Thanks in advance.

    • ANSWER:
      When you separate from your job, request a Distribution form from the Office Manager/Human Resources dept. Complete it and turn it in—once they process, it typically takes most providers about 10 days to get that money to you.

      Investments must be sold, and typically there is a 2 to 3 day settlement on this. Once they settle, the provider must have a check cut, which varies from company to company as to how long it will take.

      Keep in mind that, not only will you be penalized 10% of the balance due to your age, there will also be federal income taxes taken out of the amount (roughly 20%)….all together, expect to knock off about 30% of the ,500.

13. QUESTION:
    What are the rules on cashing out your 401K?
    Hi does anyone know how long an employer has to pay you your 401K once you turn in the paperwork? How would I go about finding out where to go or what to do if my former employer is not responsive to me regarding my 401K?

    • ANSWER:
      I think it’s 90 days.

      If they’re not being responsive, pay a personal visit and find out what the problem is.

14. QUESTION:
    Do I have to wait for a tax form similar to the W2 from cashing out my 401K before filing taxes?
    I cashed out my 401K in December.I received 00.I have already gotten my W2′s in the mail from my employer and I was wondering if there is antoher form I need to wait for from the 401 K before filing my taxes?

    • ANSWER:
      Most definitely. There will be tax and perhaps penalty on the withdrawl of that money – depending on your age and other factors.

      W2s, 1099s, etc have to be in your hands by Feb 1. Wait until you get all your forms before filing your taxes.

15. QUESTION:
    When does value of 401k lock-in when cashing out?
    I’ve decided to cash out my 401k to cover a heap of medical bills. Our insurance wasn’t that great after all. I know, I know about all the penalties, etc., but I’d like to get some money from my 401k while it still has any value at all. With the stock market tanking, does my cash out balance lockin the day I start the process or at the time the company finalizes the transaction. Just trying to figure out when to pull the trigger.

    • ANSWER:
      When the custodian sells the investments within the account.

16. QUESTION:
    How much will cashing in my 401K cost me?
    I accepted a job offer from the state. It is for less money, however, I am expecting to retire from this job and eventually have a pension. I intend to pay off all my bills other than my mortgage with my 401 K. Doubt it will earn me what I can save in interest anyway. Just wanted to know what I can expect to see out of 30 + thousand once the IRS gets their share.

    • ANSWER:
      10% plus federal income tax. So if you were in the 25% income tax bracket, you will owe ,500.

      So this is not a good idea. Roll this 401 (k) money into a rollover IRA, then from there you can choose a Roth or traditional IRA. Let your 401 (k) administrator do it though. If they cut you a check, you will have 60 days to roll it over yourself, so its easier if they do it. If you do not roll it over within 60 (pending you take the cash and don’t roll it over), you will owe the ,500.

17. QUESTION:
    What percent any dollar amount do taxes get taxes get taken out for cashing out your 401k in Texas?
    What percent are state tax and federal tax? And what happens at tax time? Do I get penalized again? If so, how much?

    • ANSWER:
      You’ll pay federal income tax at whatever your bracket is – that depends on your total income for the year, including the 401K amount withdrawn. If you are under age 59-1/2, you’ll pay an additional 10% penalty on the amount withdrawn.

      They’ll most likely withhold 20% when you get the money. If that’s not enough to cover what you owe, you’ll pay the rest when you file. If it’s too much and you don’t end up owing that much, any extra withholding will be refunded.

      Texas doesn’t have a state income tax, so there aren’t state tax issues.

18. QUESTION:
    What is the penalty for cashing in 401k Ny State?

    • ANSWER:
      Cashed in before the age of 59 1/2:

      10% immediate penalty just for “cashing it in”
      Another 30% because you owe the tax man
      and don’t forget your local state might want an additional 2 or 3 percent.

      Kiss approx. half of the money good bye….

19. QUESTION:
    I am cashing out my 401k any paths to take to avoid irs penalties?
    I want the cash out being I can do more with it in other places. just wondering if I can roll it over than withdraw it?

    • ANSWER:

20. QUESTION:
    What percentage are you penalized for cashing in your 401k? ?
    How mush does the IRS hit you for and how much will my insurance company take?

    • ANSWER:
      Since 401(k)’s are tax deferred, it means that every cent you put into it was pre-tax. Because of that, the governments want their money when you cash out (early or on time – it’s taxable upon withdrawal). The real question is how much is it?

      If you have a high income and are taking a lot of money out you could be paying almost 33% to the federal government, the highest tax bracket to your state (CA highest bracket is over 10%). Then, if you are withdrawing the money before you are 59.5 years old you will also pay a 10% penalty on that money. So, in the worst case, you will lose more than 50% of it.

      Now, a more realistic case. You are young (and foolish – which is why you are going to cash in a 401k). You have less than ,000 in it (which is why you think it isn’t such a big deal to cash out). You don’t make insane amounts of money. If your federal tax bracket is normally 15% and you are taking about ,000 and pay the 10% penalty and live in a normal state (~3-5% for state income tax) then I’d guess you’d lose roughly 30% of the balance to taxes.

      good luck!

21. QUESTION:
    is it legal for my previous employer to impede my cashing in my 401k?
    they are saying i am still an employee because i refuse to give them a resignation letter.

    • ANSWER:
      Why are you refusing to give them a resignation letter? It seems like you are both the problem and the solution here.

22. QUESTION:
    Is it worth cashing out my 401K & Roth IRA’s to reduce my debt?
    I have about ,000 in credit card debt, I have a consolidation loan (15,000) but the interest rate is ridiculous (28%) I can’t afford very much of a monthly payment (max 0).I currently have 00 in a 401K and about 00 in an IRA. What do you suggest?

    • ANSWER:
      You will have to pay taxes on your 401-K plus a 10% penalty if you are under 59 1/2

23. QUESTION:
    is cashing in a 401k the same as selling stock, mutual funds, or employee stock funds?
    turbo tax asks if you sold stocks. I cashed in my 401k. Is this the same thing?

    • ANSWER:
      As far as turbo tax is concerned that is not the same thing. There should be section called Retirement Plans and Social Security.

      If you are doing the “walk thru” method, the Retirement Plans and Social Security comes after the investment section you are currently working on.

      Disbursements of 401(k) are covered in that section.

24. QUESTION:
    How much can I be penalized for cashing out my 401K early.?
    I am 25 and only had this for a couple years. I have about 00 in there from my previous job. I am in desperate need of that money for a car. I have started a new job and my caddy died. Will I get much of anything if I cash it out? How much of the 00 would i even see? Any assistance would be greatly appreciated.

    • ANSWER:
      20 percent will come out right away and you may be taxed another 20 percent at tax time. I work for a mutual fund company and unless its death or 72t withdrawal or disability its mandatory 20 percent and then depending on your income it can be penalized by the IRS

25. QUESTION:
    Filed Chapter 13 and Cashing out 401K?
    He lost his job, he filed bankruptcy and now he cashed out his 401k. He has a Meeting with Creditors next week. I want to know if the 401k money belongs to the Trustee instead of him? this is in Ga.
    what if he already spent it?

    • ANSWER:
      Belongs to the Trustee

26. QUESTION:
    In Wisconsin, does 401k cash out affect unemployment benefits?
    In Wisconsin. If you receive a cash payment of a 401k, before applying for unemployment Will it affect your unemployment benefits? I have heard that it affects benefits if you receive it while getting unemployment.

    • ANSWER:
      It shouldn’t since it’s not income.

      If you do take a cash out, you get hit with a 10% penalty for early withdrawal and pay income taxes. They will withhold 30% to 40% depending on state income tax.

27. QUESTION:
    can back child support be collect from cashing in a 401k after quitting job?

    I did not do this my x husband did he quit his job a good job mind you, had good health insurance for our kids. now he quit and moved out of state my kids have no health insurance and now they have no child support either.
    plus he is about 00 in arrears

    • ANSWER:
      No, there is no flag to the federal government or the state government when someone cashes in a 401K, so no there is no way back child support can be taken from that.

      However, if you let child support services know that he did that, or plans to do that they may be able to do something. Personally I would push it through child support services. Get them to suspend his drivers license and issue a bench warrant for his arrest over contempt of the arrears. That way if he is stopped for even a speeding ticket he goes to jail.

28. QUESTION:
    Do you think we will be disqualified for food stamps because of my severance pay and cashing out my 401k?
    So I was just laid off and I’m collecting unemployment and we will qualify for about 0 in monthly food stamp help but I’m receiving 8 weeks of severance pay on top of the unemployment benefits and I just got 3k in 401k cash out, there is way to much money about 9 thousand from severance and 401k together, you can only have 2000 in savings to get food stamps, should we wait and apply when the money gets low? or possibly wait so severance pay or 401k as its recent and it doesn’t become a question, and then just take some money out of my accounts to get them under 2k.

    I say question because they will ask where I am currently getting money from and I will be truthful in saying just from unemployment and they will also ask if I have 401k and I’ll say no because its been closed.
    thanks for the info guys, just wanted to make sure I wasnt doing nothing dumb, I was pretty sure you had report all assets, and it makes a lot of sense that you cant just pull out the money, thanks again, I will not be applying.

    • ANSWER:
      Yes, you should wait until you can meet the requirements. And maybe you will get lucky and get a job before that, and spare yourself the embarrassment.

      If they find out you concealed assets they will be very mad at you and make you pay back any benefits improperly received. You are allowed to “spend down” to the limit by buying crap you don’t really want or need, however. Really dumb rule.

29. QUESTION:
    Where can I cash my 401k check?
    I just got my 401k check in the mail from my previous job and I was wondering where I could go get it cashed. I’ve already tried one place and they don’t cash 401k checks anymore. I don’t have a bank acct. And its from T.Rowe Price.
    It’s less than 0

    • ANSWER:

30. QUESTION:
    Cashing out 401K or taking hardship?
    I have an emergency situation for which I have tried to take out from my 401K plan. Now, I have a loan out that I’m paying off I can’t take another. Why are they telling me that 1. I can’t close it unless fired? and 2. I have to meet a certain criteria to even do a hardship withdrawl? Keep in mind, I am fully vested and am willing to pay any applicable taxes and/or penalties.

    • ANSWER:
      Each plan is setup differently and until you retire/quit your job the company does not have to let you touch that money, there are strict rules with 401ks, and each plan is setup by the company. Technically they don’t have to allow any kind of distributions – loans or withdrawals until you have left or reached retirement age. I would also not recommend the hardship, you are 40% more likely to be audited by the IRS if you take one, if you qualify, and typically you can only take hardship if your purchasing a home, your about to be foreclosed or evicted and not just behind on payments, paying for secodary education, or medical expenses, there can be others but ususally it is these 4.

      Also in response to answer #2 a hardship to a 401k does not let you avoid the 10% penalty, you still have to pay it, however you don’t have to pay taxes up front where as normally you have to pay atleast 20% upfront. Come tax time though you still have to pay it all.

      Avoiding the 10% penalty only comes from disability, death, QDRO, or equal payments. From an IRA you can avoid the 10% penalty for hardship reasons.

31. QUESTION:
    Cashing out 401K?
    I am considering cashing out my 401K when I leave my company next month. I am not retirement age. I have a vested balance of ,000 available. What are the tax penalties? I think that it is 20% right off the top and then subject to a 10% tax penalty when I file my taxes in January. Is that correct?

    • ANSWER:
      You are correct.

      I went thru this last year.

      They will deduct the 20% before they send you the check.

      And you pay the 10% on your 1040 form, line 60.

      You will get a 1099R from your company or whoever handles your investment, which list the 20% taken out as tax.

      Make sure claim that on your 1040 as tax paid.

32. QUESTION:
    I am 37 y/o with cancer and have a 401K….Does a terminal illness make a difference in terms of cashing out?
    Does having a terminal illness (Cancer)…make a difference if I was to cash out my 401K in terms of penalties and taxes? Would I still get hit with huge taxes if I was to cash out? Under the circumstances, would it be wise to leave it for my beneficiary?

    • ANSWER:
      First off, I’m sorry about what’s happening to you. The answer is that you will still get hit with the taxes but you likely can avoid the penalties if you have a large amount of medical expenses that you have to cover…that way your 401k is covering that and not other sources of income. If that’s not the case yet then it’s possible that you could get hit with the 10% penalty too. Unfortunate but that’s the case…

      As far as whether it’s better to leave for your beneficiary…there are too many variables. Here’s the basics though…If you wait until you pass then the account goes directly to the beneficiary and isn’t part of the estate. Beneficiary can then take cash or roll it over into an account to postpone taxation. If you take it now then you can only gift the normal amounts until you pass and then the assets become part of your estate. And depnding on the size of the estate it may or may not be subject to estate taxes. In the former, the beneficiary would be subject to taxes IF they take a distribution. In the latter YOU or your estate would be responsible for the taxes. Thing to think about here is creditors. If you wait until you pass then the 401k is not subject ot creditors. If you take it now then it’s like every other asset you own and is subject to creditors.

      I’d recommend you head to your closest CPA with exprience in tax planning and sit down with them. It’d be worth it to you and your beneficiaries.

33. QUESTION:
    do i have to pay tax when cashing my 401k plan at 66 yr old?
    only have small s s in come

    • ANSWER:
      yes you do have to report it. However after added to your income and the income is below poverty and you dont have to file a return, your off the hook.

34. QUESTION:
    Cashing out 401k and Withholding?
    I plan on cashing out my 401k and will not have to pay any penalties. I expect that a certain percentage will be deducted for income tax with withholding. However, I will have no taxable income, even with the addition of my 401k, for tax year 2011. Instead of waiting for an income tax refund to come in 2012, is there anyway to not have any income tac withheld on my 401k – I am not interested in giving the federal government an interest free loan. Please advise.

    • ANSWER:
      There is usually an election to not have any taxes withheld. Contact the administer to determine how to do that. If you don’t the standard is 20%.

35. QUESTION:
    Cashing out 401k repaying 401k loan?
    My husband has been out of work for 9 months, we are cashing out his 401k.. 2 years ago we borrowed 15,000 for our wedding(something I regret now..should have just eloped)… when he called and asked the amount he had in his account they said 29,000..he didn’t ask if that includes loan pay off.. would that be the amount with the loan already taken out or do they take the loan amount out after he cashes out?

    Thanks!

    • ANSWER:
      Probably the balance he has now.
      The loan is probably NOT included in that amount, since if he does not pay back the loan – it is simply treated as a cash withdrawl.

      The 29K is most likely the balance that you can take out.
      Remember the company may or not take out 20% to help you pay for the taxes.
      You will be responsible for your tax rate plus a 10% penatly.
      So save up a bit for tax time.

      He should really know this……
      /

36. QUESTION:
    Need some help with cashing out a 401k Crisp Account?
    My boyfriend recently got fired from his job, where he’s worked at for 15 years, and filed for unemployment. Was denied. Our funds are almost gone and we are looking into cashing in his 401k to help us move. One problem though, we cant seem to contact the comp. to do this seeing as they were part of the same company he got fired from. My question is this, How do we go about getting the money and how long will it take? full description please and only serious replies. Thanks in advance.
    also can it be rolled over into our bank account or somewhere else?

    • ANSWER:
      Roll it over to a different financial institution. That’ll make it easier to withdraw if that’s what you truly want to do. You’ll have to pay penalties and tax on it.

37. QUESTION:
    what are the penalty’s for cashing out my 401k?
    How much will i be taxed if i cash out my 401k? I am about to get laid off and need the money to pay school i have no money : ( I also only have about 00 in my 401k so how much will i be getting once i cash it out?

    Thank you so much

    • ANSWER:
      It will be taxable income to you at whatever your tax bracket is, plus a 10% penalty for early withdrawal if you’re under 59-1/2. If you are going to use the money for education expenses, you can avoid the penalty if you first roll it over into a traditional IRA and then withdraw it from the IRA

38. QUESTION:
    Laid off, Cashing out 401K?
    Ok, here is the situation, I don’t know if its worthy of cashing it out, you be the judge…..
    My wife recently got laid off from her job and has a little over 13k in her 401k, we have a little over 6k in credit card debt. On top of my wife losing her job, I have a struggling small construction company, in a small town. So I have barely any business and I am not bringing any income in. So, bills needless to say, are getting harder to pay. To top off the sad story, I have to have major surgery on my hip in the next month. So we have barely any income and bills piling up. I know that it is a SIN to cash out your 401k early, but with that said, we are a ship going down. We have borrowed and gotten every hand out possible, so that is the situation.
    Ok, so a little more info I guess is needed, I am 23 and my wife is 25. We have an IRA with substantially more money than the 401k. My wife just informed me that her employer added extra money to offset the cost of cashing it out, so basically they felt bad for laying her off. Also, this will not put us into a different tax bracket, we will still be in the same bracket.

    • ANSWER:

39. QUESTION:
    how do i go about cashing in my 401k?
    I GOT INTO A CAR ACCIDENT AND HAVE NO INSURANCE..I WANT TO TO GET MY CAR FIXED AND AM STRAPPED FOR CASH…HOW DO I CASH IN MY 401 K AND WHAT WILL I GET CHARGED TO DO THAT?..WHAT DO I DO ? WHAT ARE THE STEPS?

    • ANSWER:
      contact the plan trustee, which is probably NOT the employer.

40. QUESTION:
    Cashing out 401K and IRA (MN).?
    I was laid off 3 weeks ago and received a 1-month severance. Not the greatest but it helps. I’m eligible for unemployment (6/week) but it won’t be enough to pay the mortgage, 2nd mortgage, loans, bills, credit card debt, etc… I’m considering cashing out my 401K (,000 vested balance) and my IRA (,000 net worth) to pay off the credit cards. I understand that there’s a 10% tax penalty for doing so. Are there any other repercussions that I should know about? I live in Minnesota. I want to do this as a last resort but it appears that’s what I’ll have to do. Any advice is greatly appreciated. Thanks!

    • ANSWER:

41. QUESTION:
    cashing in 401K for home purchase?
    I was told several years back that there is no penalty for cashing out 401K account if using it to purchase a first home. Is this accurate?

    • ANSWER:
      No

42. QUESTION:
    When cashing in a 401K, what % should you pay up front for taxes?

    • ANSWER:
      First find out if the 10% penalty applies…then find out your marginal tax rate for the year of withdrawal. The 10% penalty applies if you are under 59 1/2 unless an exception applies:
      1. rollovers
      2. total disability
      3. if you separate from service/work and are age 55 or older
      4. if you have extensive medical costs (in excess 7.5% of AGI)
      5. if you make substantially equal pymts after retiring over your life expectancy
      6. if you’re the beneficiary of a deceased plan participant
      7. if you take a qualified reservist distribution
      8. if you’re a public safety officer separated from service

      If no exception applies, plan on paying the 10% penalty and taxes at your marginal tax rate…which depends on your taxable income and filing status. If, for example, you are single and making under ,850 in taxable income (i.e., after taking your exemptions, adjustments and standard or itemized deds), your marginal tax rate would be 15%. If you made a taxable income of over ,850, your marginal rate will be 25%…

      Hope this helps.

43. QUESTION:
    Tax Implications for a Cashing out 401k Scenario?
    I know all the personal finance experts are against this, but if anyone could advise me based on the following, it would be so very helpful.

    I live in Pennsylvania, and in 2010:

    I had no income, nor do I have any job prospects in the foreseeable future.
    I have not collected any unemployment.
    I received 00 of food stamp benefits.
    I live with my mother who has supported me and made my minimum monthly credit card payments.

    I have a 401k from a former job which I voluntarily left in 2007. It has approximately K value. 100% vested.

    If I cash it out, I know I will be responsible for the 10% penalty. But since I had no income, and therefore, no tax liability in 2010, would I have to pay any federal/state taxes on the rest of the distribution?

    Cashing out would allow me to pay off K in credit card balance, reimburse my mother for her financial aid, give me a small platform from which to get my life back in order. Not to mention the emotional relief from being in debt and the considerable interest $$$ saved.

    I feel like I am cornered. Any help would be appreciated. Thank you.

    • ANSWER:
      You could check with the trustee of the plan and see if they would allow you to take a partial distribution 20000 in the tax year 2010 before December 31 and then another one 20000 after January 1 2011 may be the income tax amount would not be as bad as taking the 40000 amount in the 2010 tax year or all of it in the 2011 tax year.
      Hope that you find the above enclosed information useful for you situation and good luck to you.

44. QUESTION:
    What happens if you cash your 401K and run away forever?
    What if, in the hypothetical case, I cashed my 401K, paid nothing to the IRS and ran away to a foreign country to never come back to the US?

    • ANSWER:
      Probably not much, but if you ever did want to come back, you’d owe a ton of interest and penalties in addition to the original tax amount.

      Some countries do have treaties that would allow the IRS to track you down there, but it wouldn’t be very likely to happen.

45. QUESTION:
    how much tax do you pay on a 401k cash out?
    my ex wife currently cashed out her 401k as part of a settlement for our divorce. my portion came to 29000. i have been out of work for the past year so this is basically my only income. i live in wisconsin and was wondering if any number crunchers can figure out what the tax will be on this, and what i will be left with. thank you very much for your time.

    • ANSWER:
      If the distribution is structured correctly there is no 10% early withdrawal penalty for QDRO distributions. So, if the plan followed the rules and the distribution was actually YOURS and not your ex-wifes then only the tax portion is applicable and your withholding should have covered it and you’ll likely get a refund of the 20% withholding they took.

46. QUESTION:
    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?

    • ANSWER:
      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!

47. QUESTION:
    How Long To Get My 401K Cash-Out?
    I quit this job 2 years ago and now I am rolling over part of my 401K to an IRA and then cashing out the rest to pay off some high-interest debt, which my financial adviser said was a good idea considering the interest rate I’m paying on this debt.

    I sent in the notarized paperwork 2 weeks ago and have still not seen the cash deposited to my account (I did direct deposit). How much longer will this take?

    • ANSWER:

48. QUESTION:
    cashing in 401k?
    how to i cash in my 401k ? who do i contact?

    • ANSWER:
      You contact the 401(k) account custodian.

49. QUESTION:
    Cashing out 401k, living in Canada, what rate will I be taxed at?
    I am a Canadian Citizen, but lived in the USA for the past 9 years as a perm resident. I have just divorced and moved back to Canada where I will now continue to live. (my ex husband is a citizen and resident of the USA) He pays me 0 a month in spousal support. I have k in 401k that I am planning to cash out to put towards a downpayment on a house here in Canada. I work part time. My question is this…when it comes to tax time, since I am no longer living in the USA, do I still have to file a tax return there? I will be filing as head of household since I have a daughter. If I do have to file in the USA, do I have to claim the money I earn here in Canada as well? I am trying to figure out what tax bracket I will fall into, and what rate the cashed out 401k will be taxed at. I earn approx 1000k a month working here in Canada part time.

    • ANSWER:
      Unless you had a greencard, once you go back to Canada, you will be looking at being a non-resident once you flunk the 183-day test. As a non-resident you file a 1040NR.

      1. The US/Canada tax treaty means you report the alimony on your Canadian tax return.

      2. The K of 401K distributions is effectively connected income, so it gets a better tax rate than the spousal support.

      3. If you cash out the 401K and you are not 59.5 years of age, you will get hit with a 10% penalty. To avoid the penalty, roll the 401K to an IRA and then limit your downpayment money to ,000 (and time it right).

      4. On the 1040NR, there is no HOH status.

50. QUESTION:
    Canadian Citizen, cashing out 401k, where will I be taxed?
    I am a Canadian Citizen, but lived in the USA for the past 9 years as a perm resident. I have just divorced and moved back to Canada where I will now continue to live. (my ex husband is a citizen and resident of the USA) He pays me 0 a month in spousal support. I have k in 401k that I am planning to cash out to put towards a downpayment on a house here in Canada. I work part time. My question is this…when it comes to tax time, since I am no longer living in the USA, do I still have to file a tax return there? I will be filing as head of household since I have a daughter. If I do have to file in the USA, do I have to claim the money I earn here in Canada as well? I am trying to figure out what tax bracket I will fall into, and what rate the cashed out 401k will be taxed at. I earn approx 1000k a month working here in Canada part time. Would I have to claim the 401k in Canada as income as well?

    • ANSWER:
      The US taxes on citizenship _and_ residence. Until you turn in your green card, the US will still consider you taxable and expect a tax return.

      The US _also_ taxes on US-source income, even if you are a non-resident alien. The early withdrawal from the 401K is considered ordinary US income and will be taxed by the US. There is a also a 10% excise tax in addition to taxes. The 401(k) custodian is required to withhold at least 20% of the distribution, although this might not be enough to cover the taxes due.

      Canada taxes on residency only. Worldwide income is taxable. According to Article XV of the Canada-US Tax Treaty, http://www.fin.gc.ca/treaties-conventions/USA_-eng.asp US employment income earned by Canadian residents is only taxed if more than ,000 is earned during the year. So yes, the 401k distribution is reportable on your Canadian return as foreign-source income, Line 130.

      http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-02-08e.html#P523_54039

      Regardless, you will get a Foreign tax credit for any taxes paid to the US on your Canadian return.

      http://www.cra-arc.gc.ca/E/pbg/tf/t2209/README.html

      If you are interested in not being penalised on the 401(k), you can roll it over into an IRA. Some investment firms, sucha Schwab, will open accounts for non-residents of the US for this purpose.