Nov 27

I am 21, I had about 4 grand in a 401k, the office that I worked in shut down and we all got laid off, my 401k automautically went into a traditional IRA. I want to pull the full amount out so I can pay off some bills and my schooling. I know they pentalize it 10%, and also take out fed. & state taxes. Is there anything else they take out?


6 comments so far...

  • countryguyhfc Said on November 27th, 2009 at 7:43 pm:

    Probably Social Security and Medicare taxes as well. You would be better off keeping it in the IRA.

  • crapaudblanc Said on November 27th, 2009 at 8:16 pm:

    capital gain.

  • theindependentinvestor Said on November 27th, 2009 at 9:09 pm:

    No, the 10% penalty and taxes are all that the government will take. there is no capital gain tax in an IRA

  • v b Said on November 27th, 2009 at 9:25 pm:

    Any money you took out is subject to income tax. It was already taxed for FICA purposes when you made the money…and it’s all taxed at ordinary income rates (the other posters apparently have no clue).

    Since some of the money was used for educational purposes, you may be able to avoid the 10% penalty on that amount. See form 5329 for the exceptions. (I haven’t looked at the rules lately, but I think if you are a full time student, you may be able to avoid the penalty on some of your living expenses as well.)

  • Albear Said on November 27th, 2009 at 9:37 pm:

    it’s always best to leave the money in the account… unless you are taking it out to put a down payment for a house then there’s no penalty…. get a loan for the amount you need to pay bills or whatnot the interest is going to be less than the penalties you’d pay on the early withdrawal

  • Knightly Said on November 27th, 2009 at 10:11 pm:

    You will pay regular income tax on the money you take out in addition to the 10% penalty. Remember that the taxes they withhold won’t necessarily cover the total tax due – it depends on your other income. Your state may also add on a penalty (in California it’s another 2.5% in addition to the regular income tax.)

    If you look at the additonal tax you will pay, it is going to be expensive money to use. And you’re giving up the chance for it to grow. You can’t make up the contribution later – each year has a contribution limit, and when that year is gone, it’s gone. If your income is low enough this year (~$25,000), you will also get a credit on your taxes (Savers Credit, Form 8880) for what money you put in this year. If you take it out, you lose the credit this year and are ineligible for the credit for the next two years.

    If you have any other way to survive, don’t wipe out your IRA. In a few years you’ll be very happy you left it in.

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