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401K - cashing out, penalties?
#1
Do I understand correctly that if I cash out my 401 k before its time I will be losing around 50% of it?

10% plus 45-55% tax? That is what I understand, is this a mistake?

Or is it just one more way that 2012 will be a crappy year for me?

I do not see any other choice at this point in the game. I have next to nothing left in savings and while I have a couple of credit cards without any debt on them, I am sickened by the idea of using them and running up a debt that I can't pay off.
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[SIZE=4]I told you I had the body of a 25 year old....

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#2
yes and sorry.
get a good conservative handle on how much you need on hand later to resolve the tax bill for that year. 4example; My partner cashed out his 401K this year and he is thinking he will owe money to the feds end of this tax year.

Cash out only what you need.
#3
Only what I need... Hmmm.

That is a hard one to say. As you may know I'm currently in the process of trying to get on SSI/SSD I still have about a year left for that process to go through. The SSI/SSD lawyer person said it takes 20-26 months from start to finish.

Things around here are changing, I'm going from a two person household to a single household while the plan was to 'survive' on his paycheck, I suspect that that plan has fallen through. Although he survived off of my paycheck for a while there.

The Lawyer person also said that AFTER I get on disability I can start draining the 401k without penalties, but the catch is I have to be on SSI/SSD first... Well that is what I understood - Lawyer people seem to talk very fast and say things that are not real English...
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[SIZE=4]I told you I had the body of a 25 year old....

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#4
Bowyn, you may qualify for a hardship exemption, in which case, the amount you take out of the 401K will be added to your gross income for this year and, taxed accordingly but, you won't loose that additional 10%.

The IRS code that governs 401k plans provides for hardship withdrawals only if: (1) the withdrawal is due to an immediate and heavy financial need; (2) the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need); (3) the withdrawal must not exceed the amount needed by you; (4) you must have first obtained all distribution or nontaxable loans available under the 401k plan; and (5) you can't contribute to the 401k plan for six months following the withdrawal.

Under the provisions of the Pension Protection Act of 2006, the need of the employee also may include the need of the employee's non-spouse, non-dependent beneficiary.

The following items are considered by the IRS as acceptable reasons for a hardship withdrawal:

Unreimbursed medical expenses for you, your spouse, or dependents.
Purchase of an employee's principal residence.
Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
For funeral expenses.
Certain expenses for the repair of damage to the employee's principal residence.*
Hardship withdrawals are subject to income tax and, if you are not at least 59½ years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back.

A hardship distribution may not exceed the amount of the need. However, the amount required to satisfy the financial need may include amounts necessary to pay any taxes or penalties that may result from the distribution.

More details here: http://www.401khelpcenter.com/hardships....GOVfI1lTZg

So, yes you probably could take enough to pay your rent for say the next 18 months, to be safe plus anything your ex (since you are still legally partners for this tax year) has in outstanding medical bills and, only pay taxes on that much.

That still won't get food, the vehicle I know you need or, much else. To manage that. yo'd have to take the added 10% penalty as well. Sad

You might be able to take only what you need under hardship now, and hold off until 2013 for the rest, thus putting a lot of it on a year where your gross income will be a lot lower, and you'll pay a lower percentage on taxes. Maybe use the business card for food and what you need that isn't covered under hardship now, then pay it off come 2013 when it won't be so hard on taxes. Yeah still no vehicle until 2013, but if you can manage that, it might help keep a bit more of it in your pocket.

Yes I know it's a lot of number crunching, credit card interest for now vs. taxes and the 10%, guesstimated 2013 gross, and what bracket you will be in then and such. Then deciding how long you can subsist without anything beyond the hardship stuff.

Just DO NOT pull it all, then put any part of it into a tax differed IRA until your DP is legally dissolved. Even if it's all in your name only, he could claim he paid into the IRA, and make that mess even bigger. Mine did that to me on one of mine. I had the documentation to prove him wrong, but still it's one more potential hassle you don't need.
#5
So eating is not a need? Rolleyes

No car? what about a bike? A pair of roller skates????

So not only has my partner turned out to be a real, big f**** d**k, I can't even live by myself until I suck it up and get raped by the Banks and the Government.

New Rule, 2012 has been canceled due to lack of interest.
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[SIZE=4]I told you I had the body of a 25 year old....

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#6
Sad I know. and well, yes you can give him the boot but, that isn't going to untangle the mess.

Were I you, I'd take the hardship I could get ASAP, see how that went since it does allow you enough to cover taxes on top of "needs" then, if any was left, decide if it was worth the 50% loss or, just hold off on the balance until January.

Apparently the IRS thinks food stamps and the city bus are good enough - even if your city doesn't have a bus system and you don't actually qualify for food stamps because you took the 401K and thus made too much money. Sad

Plus, if "Mr. FT" has medical bills, you can claim that amount under hardship and not actually pay his bills (might be the car at least).

I know, dirty pool and a bit unsavory but, I think it's going to be a good bit of that from him anyway, unfortunately. Cry
#7
Other option is to take out a loan against 401 and repay a little bit each month (I paid 40 dollars a month on 2 year loan 1000 dollars). If you go on line to who controls your 401 they show how much you can get as a loan and it is not taxed cause its a loan and you pay yourself back over time, Jim
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#8
James Wrote:Other option is to take out a loan against 401 and repay a little bit each month (I paid 40 dollars a month on 2 year loan 1000 dollars). If you go on line to who controls your 401 they show how much you can get as a loan and it is not taxed cause its a loan and you pay yourself back over time, Jim

Ah, well that sounds grand, thing is I do not have a job or income currently. I am in the process of switching from Ceo of my own company to 'the cripple next door'... If I had a job (thus an income), then I don't need SSD/SSI....

I will just have to tie myself to the rear bumper of my truck and put the truck in gear... Mind the truck doesn't run so I'm not going to get dragged that far.... :eek: :tongue:
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[SIZE=4]I told you I had the body of a 25 year old....

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#9
Blue Wrote:Sad I know. and well, yes you can give him the boot but, that isn't going to untangle the mess.

Were I you, I'd take the hardship I could get ASAP, see how that went since it does allow you enough to cover taxes on top of "needs" then, if any was left, decide if it was worth the 50% loss or, just hold off on the balance until January.

Apparently the IRS thinks food stamps and the city bus are good enough - even if your city doesn't have a bus system and you don't actually qualify for food stamps because you took the 401K and thus made too much money. Sad

Plus, if "Mr. FT" has medical bills, you can claim that amount under hardship and not actually pay his bills (might be the car at least).

I know, dirty pool and a bit unsavory but, I think it's going to be a good bit of that from him anyway, unfortunately. Cry

Hmmm. Are you suggesting I prevaricate my way out of this mess?

And are you not the man who told me not to lower myself to his standards, which I assumed included lying...?

Or are we just picking and choosing which standards to not follow?
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[SIZE=4]I told you I had the body of a 25 year old....

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#10
So take out enough in the loan to cover repayments for the period of time needed along with living money, Jim
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