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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10108
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hubby & I both have 8 yrs before retiring. We got ourselves

Customer Question

Hubby & I both have 8 yrs before retiring. We got ourselves in a pickle with credit card debt plus owe 120,000 on my mortgage so to get out of debt and get his name on my mortgage ( and to show he is purchasing a home) he is withdrawing money early from his 401k. We know there are penalties 45% & are willing to pay it to wipe out cc debts. But the new interest rare on the mortgage is making me wonder if that is the right way to go. His 40 company only asked for good faith estimate over the phone. My question, if we don't refinance will the irs penalize us more.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi

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No, the tax and tax penalty for pulling the money out "is what it is."

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The amount pulled is added to your taxable income for the year pulled (for both Federal and state income taxes)

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Then, if your husband is still working at the company, and under age 59 and 1/2, there will be that additional 10% tax at the federal level.

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So, if he is under 59 and 1/2, that total of 45% is about right.

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But what you do with the money is irrelevant to the taxation of it

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Sometimes there has to be an association to saving the house, refinancing, avoiding foreclosure, etc. through what's called "hardship," but that's a plan specific issue - simply lets you get TO your dollars before normal retirement or leaving the company.

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That doesn't change the taxation at all.

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I am a CRPS (Chartered Retirement Plans Specialist) and hold CFP and MBA designations as well as a J.D (Juris Doctorate, a doctoral degree in the law).

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Please let me known if you have more questions.

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Lane

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Expert:  Lane replied 1 year ago.

Hi,

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Just checking back in to see if you saw my answer

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Short answer is no ... no more taxes at all

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Let me know if you still have questions...

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If you don't, I'd appreciate a positive rating (by clicking the stars or smiley faces on your screen) ... that's the only way I'll be credited for the work here.

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Let me know,

Lane

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