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Financial Planning / Foolish 401(k)s


Subject:  Re: What to do with Federal 401K? Date:  11/16/2011  7:26 PM
Author:  aj485 Number:  24781 of 26268

Yes, as your figures show, the unemployed with no other income can find the 401K useful to fund minimal expenses without paying serious taxes.

I'd actually argue that the taxes paid on these withdrawals are fairly serious.

If the unemployed with no other income could find the same amount in other income from another source taxable as ordinary income, they would only end up paying $625 in income taxes ($525 from Federal and $100 from CA). That's a hit of a little over 4%.

By withdrawing from the IRA, they end up paying $2500 - 4 times as much. As already mentioned, that's a hit of about 17%. While not big hit in absolute dollars, I'd consider it a pretty big hit in comparison to the minimal income.

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