401k Withdrawal Question

[bricka]

I'm currently finishing up year 1 of a 5 year payment plan in a Chapter 13 case. It's not a 100% plan. My payment is $450 a month and surrendering any tax returns in those 5 years.

I incurred some debts this year, due to illness, that have stretched my budget thin and to the point of breaking. I was thinking of withdrawing what I have in my 401k to help me play catch up (since I have the maximum number of loans against it, already). I don't anticipate next year being like this year, so I don't think changing the plan would be necessary.

But will I be penalized if I take the money out of my 401k? Will my plan be dismissed or the money taken away from me?

[readytofile]

I don't know your answer but I'm begging you don't do it! Been there done that and still paying on the repercussions of it! Try to find some way around using it. It's not worth it.

[klandsb]

Here is my experience. July 2009 getting sued for a $3000 lowes credit card. I think well I have no loans left on my 401k so I will take a hardship withdrawl and pay them off. Got the papers, filed them out, sent the judgement papers in. It was a NO GO.. not a hardship. Must be foreclosure, funeral expenes, college expense ...... In the end I am so thankful they said NO...It was a blessing in decise

[AngelinaCatHub]

PLEASE DON'T DO IT!!

Not only do you lose on taxes and penalties, but you turn non exempt funds into INCOME. Yes you certainly will be penalized and the money will be taken for your current payment plan.

If you are that in distress, you might just attempt going 7.

I WARN you, you will regret doing this. 'Hub

[MSbklawyer]

I'm currently finishing up year 1 of a 5 year payment plan in a Chapter 13 case. It's not a 100% plan. My payment is $450 a month and surrendering any tax returns in those 5 years.

Cat Hub's advice is sound -- withdrawing from your 401k will turn an exempt asset into income.

But here's an idea: Structure your withholding so that you don't HAVE a tax refund. A tax refund is simply excess withholding above your actual tax liability. If you are getting a big tax refund that's going to the trustee, then change your withholding so that you're as close to a zero refund as possible. That should put some more money in your pocket.

[AngelinaCatHub]

Cat Hub's advice is sound -- withdrawing from your 401k will turn an exempt asset into income.

But here's an idea: Structure your withholding so that you don't HAVE a tax refund. A tax refund is simply excess withholding above your actual tax liability. If you are getting a big tax refund that's going to the trustee, then change your withholding so that you're as close to a zero refund as possible. That should put some more money in your pocket.

Clap, Clap, Clap. Thankyou.

[gophermn]

bricka - withdrawals are all different per employer. Some will let you do Hardship withdrawals (i.e. medical, foreclosure, tuition) and other will let you take loans against your 401K. If you MUST use 401K see if they have loans against it. The interest rate is pretty small and you have the option of paying it back quick.
If you choose to just take a 401K withdrawal you could be charged up to 30% (i.e. 20% FED and 10% state).

As most said in here, you should use the 401K as the last resort. But check with the loan process first, hardship second. Most hardship withdrawals will require you to not take part for 6months thereafter.

Good luck!

[klandsb]

gophermn, I think you missed the part that she is maxed out on her 401k loans. NON AVAIL....
Also, the part about taxes is interesting. I just changed mine this year due to my son no longer being a dependant. My tax lady said to make it -0- and I noticed a difference immediatly.. I just dont want to end up owing someone else. Especially the goverment !!

[pcn]

If you qualify for a hardship withdrawal you will still "qualify" to pay the early withdrawal penalty (10%) as well as the increased taxes.