Liquidating my 401k

01-Dec-2016 20:25

401k is a retirement plan that aims at ensuring solvency in the retirement years.

Cashing out the 401k to pay off current debt is in the 99.9 percent of the cases a bad idea.

You'll only pay income taxes on the ,000 of income. According to IRS Publication 590, the taxable part of your IRA distribution gets included in your taxable income for the year -- in other words, it's taxed at your regular income tax rate, depending on your tax bracket.

Furthermore, there is an emotional weight that initiates when you start considering your 401k as ready-to-access money.

If you liquidate your 401k before the age of 59 1/2, the retirement funds are subject to taxation and 10% penalty payment.

This is another reason why young people should not consider liquidation of their 401k plans, but even if they do they should be sure to calculate taxes and penalties correctly with a tax preparer to avoid additional charges in their already difficult financial situation.

There also is an immediate cost when cashing out and it can deliver a really large bill on your door.

As soon as you liquidate your 401k, your plan administrator automatically withholds 20% of your balance and sends it directly to the IRS to cover the taxes you may need to pay on that withdrawal.

Furthermore, there is an emotional weight that initiates when you start considering your 401k as ready-to-access money.

If you liquidate your 401k before the age of 59 1/2, the retirement funds are subject to taxation and 10% penalty payment.

This is another reason why young people should not consider liquidation of their 401k plans, but even if they do they should be sure to calculate taxes and penalties correctly with a tax preparer to avoid additional charges in their already difficult financial situation.

There also is an immediate cost when cashing out and it can deliver a really large bill on your door.

As soon as you liquidate your 401k, your plan administrator automatically withholds 20% of your balance and sends it directly to the IRS to cover the taxes you may need to pay on that withdrawal.

After a few years, you to the same and after a few years again the same.