Sponsored Links :
401K Tax Penalty
If you are facing a real financial crunch, you could tap into your 401k. However, beware! It will really cost you in terms of 401k tax penalty leaving you wondering whether it was really a good idea to dig into your retirement fund. |
|
Sometimes people want to buy a home and they think that they can take a hardship withdrawal from their 401k savings. Yes, you will become a happy homeowner but an agitated taxpayer. Why? You will be facing the prospect of paying hefty taxes and penalties on your 401k withdrawal.
The worse part is that you will not be able to put the money back in your 401k and avoid the 401k tax penalty.
Unfortunately there are many people willing to tap into their retirement savings, especially with the weakening economy and the onset of the holiday season. You have to remember that a withdrawal taken in haste could have a detrimental effect on your life after retirement.
A hardship withdrawal from your 401k plan is difficult to make and if you do make it, it is an expensive affair. The reason behind this is very simple. Your 401k is there to provide you with income after your retirement and it should be the last resort for your present cash needs. In order to discourage early withdrawals, the IRS imposes a huge 401k tax penalty.
So, if you are under 59-1/2 and you withdraw money from your 401k, you will end up paying the applicable income tax along with a 10 percent 401k penalty. If you calculate, that will work out to quite a bit. The 401k tax penalty just does not make it worth your while and you should do your best not to withdraw money from your 401k retirement plan.
|
