March 17, 2009
What’s the 401k penalty if you have very low income and may not have a federal tax burden at all? Just the 10%?
wrda asked:
If the taxes and penalty are prohibitive to taking out 401k money, what if a person normally has no tax burden (EIT credit recipient)? We’re only talking about $5k, for a one-time debt relief related to a divorce. If the penalty is only $500, it may be a useful option, where no other solution is available. Is there something I’m missing?
If the taxes and penalty are prohibitive to taking out 401k money, what if a person normally has no tax burden (EIT credit recipient)? We’re only talking about $5k, for a one-time debt relief related to a divorce. If the penalty is only $500, it may be a useful option, where no other solution is available. Is there something I’m missing?
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Comments on What’s the 401k penalty if you have very low income and may not have a federal tax burden at all? Just the 10%?
Well, some plans come with hardship components allowing one to withdraw money without penalty. I’m still not sure how the stimulus will affect 401 (k) withdrawals, but the normal penalty is 10% plus federal income tax.
You might have trouble with your HR department if you try to take the money out in full.
It has to be a hardship situation, like medical, or lawsuits that your HR has to approve.
Have you considered making a loan from your 401K?
This is much easier, and you will be paying yourself back the interest.
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Your gross withdrawal is taxable income, so that may move you into a higher tax bracket.