SavingsTalk.com

natali

I worked for two government schools in Texas and North carolina, while they didnt offer 401K accounts, they had their own 401A Retirment accounts, I really really need the money so I've decided to get a refund directly to me because I dont have the luxury to open up a Roth IRA at this time. I know I will pay 20% tax penalty on both accounts, but at the end of the yr during taxes, will i be in big trouble with the IRS such Will I be penalized again? Its my money, and i have alot saved up in those accounts, I'm 25, have a Trowe Price 401K with my current employer, and investing 10% w/ 6% company match. I know I can make up for lost contributions fully next yr . this year I'm trying to get out of debt!!!! I also plan to open a Roth IRA next yr and hope to contribute to that. First thing first, is get out of debt. So my main question IF i ask for my 401A accounts to be refunded: will 20% be my only penality, or during tax time i will be in trouble?<br />i just want to know my consequences.<br />I can take the money out of both accounts because they are both 401A accounts. 401K however I cannot take out until I'm 59 1/2, which I already know.<br />

avitse1341

PLEASE talk to an accountant in your area before doing anything!! He/she may give you better ideas than depleting your retirement accounts to pay bills!

alexanra

You might need to declare that money as income on your tax return, but as far as any further penalty, I don't see why you would have any.

If you're already paying taxes on that money, then you should be ok.

You might want to consider getting yourself an accountant though. When you're unsure about taxes it is always best to go to an expert. Taxes are a jumbled and confusing mess.

Good luck!

Quake5

Well, you wont be in trouble at tax time, because when you take the disbursement, the investment house thazt runs the retirement plan will also likely withold all the taxes, in addition to the penalty. I think that the penalty is only 10% though, by the way. So its 10% + your regular tax rate (say 25%) = 35% of your money goen in one fell swoop. You say you'll catch up, but you can never catch up on lost gains. My advice to you is to roll the money over into your new retirement account, but then only contribute what your employer will match to that account. Take the rest of the money and pay down your debt ASAP, before doing any other retirement account funding. Good luck.

sox

They usually don't allow to take money out of a 401k plan before you're 59-1/2 unless you have an extreme hardship and paying off debt doesn't cut it. They won't approve that reason. If you want to have extra money to pay off debt - temporarily stop contributing to your 401k and use the extra money in your net pay to accelerate paying off the debts.

IF, by some miracle you were able to the get the money out, you get hit with a 10% penalty at tax return time AND the money you pull out is not necessarily taxed at 20% - It's taxed at whatever tax bracket you wind up in at the end of the year when you add those withdrawals to the rest of your income. I'm guessing since you can afford to contribute 10%, you're probably in the 25% tax bracket. It may be your money, but there are rules you have to follow and depending on the plans vesting guidelines - you may not fully &quot;own&quot; the company matching portion yet - Sometimes that takes up to 5 yrs to get fully vested in a single year's match, so you May (still only one chance in a million) be only able to get the amounts you have contributed out, not the matching.