Author Topic: 401K Cash Out  (Read 720 times)

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Offline ucoc

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401K Cash Out
« on: January 04, 2019, 01:43:21 PM »
I briefly asked this in another thread also, but wanted to ask if anyone had cashed out their 401K before you turned 65. My wife quit her job last year and we wanted to cash out for another purpose. If anyone has done this, did you get the money without the tax or did you have to pay the tax the following year? Was the penalty pretty big? Any recommendations or warning before we do this?

Offline mads

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Re: 401K Cash Out
« Reply #1 on: January 06, 2019, 02:24:47 PM »
Hi, we had withdrawn from our IRA when we purchased our home. We were able to pay the amount back into the IRA within the 60 day rollover. so there will be no back taxes or penalties to be paid for the 2018 tax return. The 60 day rollover rule is: if you withdraw money from your IRA or 401k , you have 60 days to put the exact amount back in a retirement account. If you are not able to do so, the money you withdrew is considered as income for that year. In addition, you need to pay a 10% penalty. You can do the 60 day rollover once every 12 months. Hope this helps.

Offline ucoc

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Re: 401K Cash Out
« Reply #2 on: January 07, 2019, 01:10:28 PM »
Hi, we had withdrawn from our IRA when we purchased our home. We were able to pay the amount back into the IRA within the 60 day rollover. so there will be no back taxes or penalties to be paid for the 2018 tax return. The 60 day rollover rule is: if you withdraw money from your IRA or 401k , you have 60 days to put the exact amount back in a retirement account. If you are not able to do so, the money you withdrew is considered as income for that year. In addition, you need to pay a 10% penalty. You can do the 60 day rollover once every 12 months. Hope this helps.

Thanks for the response. I guess not many people have dealt with this. I guess it could be just simple cash out and pay the penalty and taxes. The 60 day rollover rule is very helpful to know though. Thanks again!

Offline Liar Loan

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Re: 401K Cash Out
« Reply #3 on: February 04, 2019, 10:05:24 AM »
Hi, we had withdrawn from our IRA when we purchased our home. We were able to pay the amount back into the IRA within the 60 day rollover. so there will be no back taxes or penalties to be paid for the 2018 tax return. The 60 day rollover rule is: if you withdraw money from your IRA or 401k , you have 60 days to put the exact amount back in a retirement account. If you are not able to do so, the money you withdrew is considered as income for that year. In addition, you need to pay a 10% penalty. You can do the 60 day rollover once every 12 months. Hope this helps.

Thanks for the response. I guess not many people have dealt with this. I guess it could be just simple cash out and pay the penalty and taxes. The 60 day rollover rule is very helpful to know though. Thanks again!

It's not advisable because you are likely to pay 43% or more, to the government. (24% Fed + 10% penalty + 9% State)  This is to quote Dave Ramsey now, but would you borrow money at a 43% interest rate?  That is effectively what you are doing here. 

So following that logic, it would be smarter to max out your highest APR credit card than to withdraw that money.  It would be smarter to get a payday loan, or a loan from Vinny the local loan shark, than to do what your wife is planning to do.

I'm not saying this is ideal either, but maybe your wife should first think about getting a 401k loan over withdrawing the money outright and paying that huge tax bill.
eyephone:  Your the snowflake lil bitch. Making up fake stories.

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Offline zubs

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Re: 401K Cash Out
« Reply #4 on: May 01, 2019, 10:38:49 AM »
I've had employees borrow money from their 401k.  Both of them are paying back their 401K every pay period and they also have to pay interest on top of it.  However when they took out the loan, it was not taxed.

Offline paydawg

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Re: 401K Cash Out
« Reply #5 on: May 01, 2019, 02:26:00 PM »
Hi, we had withdrawn from our IRA when we purchased our home. We were able to pay the amount back into the IRA within the 60 day rollover. so there will be no back taxes or penalties to be paid for the 2018 tax return. The 60 day rollover rule is: if you withdraw money from your IRA or 401k , you have 60 days to put the exact amount back in a retirement account. If you are not able to do so, the money you withdrew is considered as income for that year. In addition, you need to pay a 10% penalty. You can do the 60 day rollover once every 12 months. Hope this helps.

Thanks for the response. I guess not many people have dealt with this. I guess it could be just simple cash out and pay the penalty and taxes. The 60 day rollover rule is very helpful to know though. Thanks again!

It's not advisable because you are likely to pay 43% or more, to the government. (24% Fed + 10% penalty + 9% State)  This is to quote Dave Ramsey now, but would you borrow money at a 43% interest rate?  That is effectively what you are doing here. 

So following that logic, it would be smarter to max out your highest APR credit card than to withdraw that money.  It would be smarter to get a payday loan, or a loan from Vinny the local loan shark, than to do what your wife is planning to do.

I'm not saying this is ideal either, but maybe your wife should first think about getting a 401k loan over withdrawing the money outright and paying that huge tax bill.

The one thing to consider about the credit card option is that interest rate is compounding daily until the balance is paid off.  If you're looking to hold a balance for 2+ years, you may very well incur that 43%.  Cashing out your retirement accounts is also not recommended, but that 43% number is a one-time hit. 
Thanks in advance for the 'thanks'!!

Offline Mety

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Re: 401K Cash Out
« Reply #6 on: May 01, 2019, 02:34:41 PM »
Hi, we had withdrawn from our IRA when we purchased our home. We were able to pay the amount back into the IRA within the 60 day rollover. so there will be no back taxes or penalties to be paid for the 2018 tax return. The 60 day rollover rule is: if you withdraw money from your IRA or 401k , you have 60 days to put the exact amount back in a retirement account. If you are not able to do so, the money you withdrew is considered as income for that year. In addition, you need to pay a 10% penalty. You can do the 60 day rollover once every 12 months. Hope this helps.

Thanks for the response. I guess not many people have dealt with this. I guess it could be just simple cash out and pay the penalty and taxes. The 60 day rollover rule is very helpful to know though. Thanks again!

It's not advisable because you are likely to pay 43% or more, to the government. (24% Fed + 10% penalty + 9% State)  This is to quote Dave Ramsey now, but would you borrow money at a 43% interest rate?  That is effectively what you are doing here. 

So following that logic, it would be smarter to max out your highest APR credit card than to withdraw that money.  It would be smarter to get a payday loan, or a loan from Vinny the local loan shark, than to do what your wife is planning to do.

I'm not saying this is ideal either, but maybe your wife should first think about getting a 401k loan over withdrawing the money outright and paying that huge tax bill.

The one thing to consider about the credit card option is that interest rate is compounding daily until the balance is paid off.  If you're looking to hold a balance for 2+ years, you may very well incur that 43%.  Cashing out your retirement accounts is also not recommended, but that 43% number is a one-time hit.

Why is everyone worried about that 43 or whatever % you need to pay? So that you won’t have to pay that when you’re 65?

Which one is better? Cash in your bank “now” with 43% less or cash in your bank in like “40 years” without that 43% deduction?

 

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