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|Subject: Re: Poll: 401K Roll it? Take it?||Date: 4/3/2007 5:59 PM|
|Author: aj485||Number: 56559 of 76418|
The qualifying event has occured. You can take your money out of your 401K early. You are almost 50 years old. It's around $50,000.00.
After the tax & penalty hit, you beleive you will have around $40,000.00 to pay off the debt, and invest with.
You would be incorrect in your belief. Since you are still working, the $50k will be added to your income for the year you take it, pushing your marginal tax bracket for most, if not all of the distribution to at least the 25% federal bracket, if not higher. You will also pay a 10% penalty.
That means that after tax and penalty, you will end up with, at most, $32.5k. And that's before any state taxes or penalties are considered.
The problem is - they will only withhold 20% - so you will have $40k in your hand, but unless you set the money aside - where are you going to come up with the other $7.5k to pay Uncle Sam with next April to avoid additional penalties? So, at most, out of the $40k, you will be able to spend $32.5k, and have to save at least $7.5k.
Then, after paying off $13k in credit cards, you will have less than $20k left to invest. Out of $50k.
Plus, you are 50 years old. $50k in a 401(k) at the age of 50 is a pretty small nest egg if you want to retire. At your age, you should have at least 3 - 5 times your annual income put away in retirement funds.
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