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Subject:  Re: Cash out refi or early ira withdrawl? Date:  10/21/2020  12:21 PM
Author:  aj485 Number:  312953 of 312970

Welcome to TMF. I would strongly suggest that when you post, unless you actually do put in your own line breaks, that you NOT check the "Table Data (fixed-width font, enter your own line breaks)" box when posting.

If you take a early withdraw you will be charged a ten percent penalty if your are under the age of 59-1/2 or younger.

Unless you meet an exception, which, in 2020, includes being impacted by COVID-19.

Also when you pay back your 401K plus any interest you will be paying yourself back from the gross portion [already taxed]of your paycheck, meaning that you are paying double tax on 401K due to the fact that they will tax you when you someday take a withdraw after retirement.

Sorry, this is a red herring. First of all, the OP didn't talk about taking out a loan from their 401(k), which is the way that you would generally 'pay it back from your paycheck'. But even if they had been talking about taking a loan, there is no double taxation of income. We are taxed on income. When you take out a 401(k) loan, it doesn't change your income, so you don't pay any additional income tax. While you are paying back the 401(k) loan, you still have the same income, so there isn't any additional income tax. When you withdraw from your 401(k), you are taxed on the withdrawal amount as income. You aren't taxed any additional amount because some of the money was once taken out as a loan and was then repaid. So, where is the double taxation? You pay the same amount of income taxes throughout your lifetime whether or not you take out a 401(k) loan.

In fact, some people say that by taking out a 401(k) loan, you are actually lessening the value that the account will grow to by the time you retire, because the return on the 401(k) loan is less than you can get in stocks.* If that's the case, you actually lower your lifetime tax bill a bit, because a lower account balance will result in lower RMDs, which will result in lower taxes. So, if that's correct, over your lifetime, by taking out a 401(k) loan, you will actually pay less in income taxes.

AJ
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