AS I understand it the immediate hit is 10% penalty for early withdrawal. Then at the end of the year you get taxed on the full amount as if it was regular income.
So you wind up losing close to 40%.
If someone HAS to do it the better way to do it is borrow against the 401k but it doesn't sound like that's an option here?
Apparently in some states the 401K administrator will withold 20% upfront, 10% for the penalty, and another 10% in anticipated year end taxes. In that scenario you will almost always end up paying more again at the end in taxes since your tax rate will be higher than 10%.
Edit, I googled it the 20% is separate from the 10%. 10% is penalty, 20 is anticipated taxes so it's roughly 30% as Linderbee said. The problem is most of us are in a higher than 20% tax bracket
so even after all that end of year you will be underwitheld and owe more.
ďYour expectations always exceed outside expectations. I feel like you just canít stop working, canít stop getting better, because Iíll be a failure in my eyes before Iím a failure in someone elseís eyes.Ē -- Arron Afflalo
Last edited by Russ Smith; December 7th, 2007 at 02:56 PM.