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401K question...

post #1 of 27
Thread Starter 
Okay I have a 401K from my old job... as a teacher, my money doesn't go into a 401K, I think it goes into a 403b or something.

My question is this: is there a way to get the money from the 401K without it being a loan, just to close the 401K? I know that I'd lose a lot because I'm taking it out before time but... it's a real emergency situation, as best as I can figure.
post #2 of 27
In Canada, I think that is the same as an RRSP. If it is, you can take the money out, but will pay full tax on it.
post #3 of 27
As far as I know, you can withdraw money from it, but they charge you a 10% (ish) penalty and if you are withdrawing everything in it, hold about 20% for whatever tax penalties may have to be paid as you have used it against your taxes so they will advise against it but you can take it with the penalties etc
post #4 of 27
You can close out a 401(k) and get the money straight out, but you will definitely take a big hit on the taxes. Still, if you NEED the money, it is YOUR money and you can get it out.
post #5 of 27
Quote:
Originally Posted by valanhb View Post
You can close out a 401(k) and get the money straight out, but you will definitely take a big hit on the taxes. Still, if you NEED the money, it is YOUR money and you can get it out.
I think that is the way that it is, I think you might can take a certain per cent of it without being penalized though, but I am not sure about that. My husband had a 401K before and it seems like we took some of it out when our daughter got married.
post #6 of 27
Thread Starter 
Quote:
Originally Posted by valanhb View Post
You can close out a 401(k) and get the money straight out, but you will definitely take a big hit on the taxes. Still, if you NEED the money, it is YOUR money and you can get it out.
Okay I figured out the number to talk to someone (obviously can't do anything financial until Monday) and it is 20%. But yes, I think I need the money... sigh. Thanks guys.
post #7 of 27
If you do cash in, be sure to hold some back in case you owe the IRS next year.
post #8 of 27
Thread Starter 
Quote:
Originally Posted by gemlady View Post
If you do cash in, be sure to hold some back in case you owe the IRS next year.
Thanks, I hadn't thought of that. Good point.
post #9 of 27
Quote:
Originally Posted by gemlady View Post
If you do cash in, be sure to hold some back in case you owe the IRS next year.
I believe it is treated as regular income, so if it pushes you into a higher tax bracket, you are getting doubly socked. Have you looked into other things like equity loans?
post #10 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
Okay I have a 401K from my old job... as a teacher, my money doesn't go into a 401K, I think it goes into a 403b or something.

My question is this: is there a way to get the money from the 401K without it being a loan, just to close the 401K? I know that I'd lose a lot because I'm taking it out before time but... it's a real emergency situation, as best as I can figure.
The quick and easy answer is this (catching a plane any minute now)...

When you leave a job, it is almost a blessing. You can roll your entire 401K into an IRA with any company you like: Fidelity, Vanguard, etc. So when you figure out which company and funds you like, talk to that company and they will walk you through the steps of rolling it into the IRA. Whatever you do, do NOT withdraw the money yourself to do this. They money should be transfered directly from your 401K company to the new IRA company.

Gotta run...
post #11 of 27
I took a loan on my 401k and I am in the process of obtaining a withdrawal due to financial difficulties. I know that I am going to taxed to death on it but I really need the money.
post #12 of 27
Thread Starter 
Quote:
Originally Posted by Momofmany View Post
I believe it is treated as regular income, so if it pushes you into a higher tax bracket, you are getting doubly socked. Have you looked into other things like equity loans?
It probably wouldn't put me into a higher tax bracket, I think after whatever gets taken out it'll be like $1500 or so.

I already have a loan but it's pretty much maxed out and I don't want to get in even more debt, you know?
post #13 of 27
You can take a loan from your 401k (up to 50% of your vested amount) and pay it back without a tax penalty. The thing with this is you don't get the interest on the money because it is not there.

You can close the 401k and take a lump sum. You then have up to sixty days to get it back into another account like an IRA.

If you don't put the money into another retirement account you will have to pay taxes on the entire amount based on your tax bracket. You will also pay another 10% on top of that because of the early withdrawal.

I think the 20% that people are talking about is what the 401k plan will withhold in anticipation of your having to pay taxes. It is not like you will be taxed 20% but you are taxed on your tax bracket.

I went through this about 14 years ago and didn't have to 20% withheld, so I think that is something that you can waive.
post #14 of 27
Thread Starter 
Quote:
Originally Posted by markvg View Post
If you don't put the money into another retirement account you will have to pay taxes on the entire amount based on your tax bracket. You will also pay another 10% on top of that because of the early withdrawal.

I think the 20% that people are talking about is what the 401k plan will withhold in anticipation of your having to pay taxes. It is not like you will be taxed 20% but you are taxed on your tax bracket.
Okay this is getting complicated. All this math makes me not want to do it! So how do I figure out how much taxes I'll have to pay if it's relevant to my tax bracket?
post #15 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
Okay this is getting complicated. All this math makes me not want to do it! So how do I figure out how much taxes I'll have to pay if it's relevant to my tax bracket?

That's a good question. It is a complicated formula. If you want to get a big headache, the information is here: http://www.irs.gov/formspubs/article...164272,00.html
post #16 of 27
Thread Starter 
So taxable income meaning how much is in the 401k? Because in that case, the 401k is not over $7000 (boy do I wish it were even close) so then it'd be 10%. Plus the other 10%?
post #17 of 27
Also, if you look at that chart, you can see how, as previously stated by Momofmany, you could be bumped into a higher tax bracket and that will cause more taxes on all your income.
post #18 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
So taxable income meaning how much is in the 401k? Because in that case, the 401k is not over $7000 (boy do I wish it were even close) so then it'd be 10%. Plus the other 10%?
Nope. The tax bracket is your total income which would be bumped up by the $7000.
post #19 of 27
Thread Starter 
I think it barely puts me in the next tax bracket... but that being said, next year I plan on getting a teaching job that pays more (plenty of schools do) so in that case, I'd end up in the next bracket anyway. So then it doesn't matter, right?
post #20 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
Okay I have a 401K from my old job... as a teacher, my money doesn't go into a 401K, I think it goes into a 403b or something.

My question is this: is there a way to get the money from the 401K without it being a loan, just to close the 401K? I know that I'd lose a lot because I'm taking it out before time but... it's a real emergency situation, as best as I can figure.

I don't know if you can take a partial w/d. You will be taxed and whoever handles the 403b(not your employer) they will charge you also. It really truely isn't worth it. Best bet is to take a personal loan or loan against the 403b. If the company tells you that you have to close the 403b completely make sure you seek out a financial advisor asap to reinvest the left over money. As long as it goes into a "qualified" plan you will not be penalized on what you reinvest.
post #21 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
I think it barely puts me in the next tax bracket... but that being said, next year I plan on getting a teaching job that pays more (plenty of schools do) so in that case, I'd end up in the next bracket anyway. So then it doesn't matter, right?
Next year won't matter since you are doing the 401k thing this year.

To figure out what bracket you are in this year: add the $7000 to what you think your total income for this year is. That will tell you what bracket you will be in for this year's taxes (this will be for the forms you fill out next year).
post #22 of 27
Quote:
Originally Posted by markvg View Post
You can take a loan from your 401k (up to 50% of your vested amount) and pay it back without a tax penalty. The thing with this is you don't get the interest on the money because it is not there.

You can close the 401k and take a lump sum. You then have up to sixty days to get it back into another account like an IRA.

If you don't put the money into another retirement account you will have to pay taxes on the entire amount based on your tax bracket. You will also pay another 10% on top of that because of the early withdrawal.

I think the 20% that people are talking about is what the 401k plan will withhold in anticipation of your having to pay taxes. It is not like you will be taxed 20% but you are taxed on your tax bracket.

I went through this about 14 years ago and didn't have to 20% withheld, so I think that is something that you can waive.
Why wouldn't the 20% apply? You can ask them not to take it now but you still owe the IRS the 20% by next tax year. It can be waived but if you don't specify they automatically take it out.

*edit*
I found this from MSN Money

Do I have to pay taxes and penalty on a hardship withdrawal from my 401(k)?

Qualifying for a hardship withdrawal from your 401(k), doesn’t automatically exempt you from an early withdrawal penalty on the withdrawal. And you still have to pay income taxes on the money. By the time you pay federal and state income taxes, plus a 10% penalty, you may only get to keep 50% or so of the money you withdraw.

Make early withdrawals from your 401(k) only as a last resort. And be careful of the timing of the withdrawal. If, say, you will be in a lower tax bracket the following year, waiting a month or more can make a big difference in your tax bill.
post #23 of 27
Quote:
Originally Posted by crazyforinfo View Post
Why wouldn't the 20% apply? You can ask them not to take it now but you still owe the IRS the 20% by next tax year. It can be waived but if you don't specify they automatically take it out.

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What I believe is the penalty is 10%. The 20% is to help you pay the tax. When I did it, I didn't have the 20% taken out. I got the lump sum but planned on moving the money into a qualified account within the 60 days. At that point, it was my money. If I didn't move it to a qualified account, I would have been responsible for all the taxes, plus the 10% penalty. If I had the 20% withheld and kept the money, I think you take the 20% off as taxes already paid. I didn't do it, so I'm not sure.
post #24 of 27
Thread Starter 
Quote:
Originally Posted by markvg View Post
Next year won't matter since you are doing the 401k thing this year.

To figure out what bracket you are in this year: add the $7000 to what you think your total income for this year is. That will tell you what bracket you will be in for this year's taxes (this will be for the forms you fill out next year).
I meant next school year. As in, August of this year.

And I'm not going to really add $7000 because that's not how much is in my 401k. Right now there's $2000 in my 401k, minus all the deductions, of course. So yes, that money would push me in the next bracket - but so would my next teaching job which would start in August.
post #25 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
I meant next school year. As in, August of this year.

And I'm not going to really add $7000 because that's not how much is in my 401k. Right now there's $2000 in my 401k, minus all the deductions, of course. So yes, that money would push me in the next bracket - but so would my next teaching job which would start in August.
Ok. Just remember, whatever money you take out of the 401k (and keep) this year is added income (like your new teaching job) for this year. When you do your taxes next year (for this year), it needs to be accounted for on the tax return, plus the 10% penalty.

The best thing to do, like others have said, is just move the money to an IRA and not worry about the tax stuff. If you need the money now, you will end up paying a ton of it back next year in taxes and the penalty. With the 401k, the taxes have not been taken out over how long you have had it. Those taxes will now be due.
post #26 of 27
Thread Starter 
I guess I won't worry about it then. Thanks.
post #27 of 27
Quote:
Originally Posted by pinkdaisy226 View Post
I guess I won't worry about it then. Thanks.
Good luck!
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