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Scott
Scott, MIT Graduate
Category: Finance
Satisfied Customers: 17710
Experience:  I manage my own money -- stocks, bonds, 401k, etc.
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If I wanted to cash in my 4O1K before I retire what would ...

Customer Question

If I wanted to cash in my 4O1K before I retire what would the penalties and tax be?
Submitted: 9 years ago.
Category: Finance
Expert:  Scott replied 9 years ago.

Hi, and welcome to JA!

If you withdraw from your 401(k) plan before you turn 59 and 1/2, you will face a 10% penalty, unless you meet a hardship condition. In addition, as with any withdrawal from a 401(k), you will have to pay ordinary income tax on the amount you withdraw.

Here are a couple references: http://en.wikipedia.org/wiki/401(k)#Withdrawal_of_funds (including a list of the hardship cases), http://wps.fidelity.com/401k/about/with.htm#4

Let me know if you have any questions. Don't forget that I only get credit for helping you if you press the "Accept" button. Thanks!

-Scott

Customer: replied 9 years ago.
Reply to Scott's Post: I am curious what the income tax would be? What information is required to figure that out?
Expert:  Scott replied 9 years ago.

Hi again,

That depends on your tax bracket (which in turn depends on how much other income you make in the year you cash it out). Your tax bracket also depends on how you file (single, married, etc.).

Here is the current tax bracket information: http://www.irs.gov/formspubs/article/0,,id=150856,00.html. For example, if you are single and have 50,000 in other income, and you cash out 10,000 from the 401(k), it will be taxed at the 25% bracket (in addition to the 10% penalty). If you need further help understanding that page for your specific case, I'll be glad to help.

-Scott

Customer: replied 9 years ago.
Reply to Scott's Post: If I earn 100,00 and my 401K is 27000
Expert:  Scott replied 9 years ago.

Is that 100,000 or 10,000? Are you planning on withdrawing all 27,000?

-Scott

Customer: replied 9 years ago.
Reply to Scott's Post: My income this year will be about $100,00.00 and I want to withdraw all $27,00.00
Expert:  Scott replied 9 years ago.

Ok, last question: do you file as a single, married, head of household, or married filing separately?

Thanks,

Scott

Expert:  Scott replied 9 years ago.

Ok, let me tell you about the two most common cases:

The 10% penalty is going to be $2700.

single -- 28% tax bracket -- $7560 in income tax

married -- the first 23,700 of the 401(k) withdrawal will be in the 25% bracket, and the rest will be at 28% -- $6849 in income tax

-Scott