How do you take out an early 401k withdrawal?
Posted by Dolores
Jen asked:
I see all over the internet people mentioning cashing in their 401k early to pay off debt. I just tried to do that exact same thing, yet according to my representative, (who put me on hold to verify with someone else) there is not one single legal way I can cash in my 401k early without qualifying for a Hardship Withdrawal and providing proof from a very limited list of acceptable documents for them to investigate.
I see all over the internet people mentioning cashing in their 401k early to pay off debt. I just tried to do that exact same thing, yet according to my representative, (who put me on hold to verify with someone else) there is not one single legal way I can cash in my 401k early without qualifying for a Hardship Withdrawal and providing proof from a very limited list of acceptable documents for them to investigate.
Which is the truth here: Have people closed out their 401k early to pay off debt, or is there no legal way to do so?
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October 13th, 2009 at 10:28 am
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Yes they are telling you the truth - I did it - and did they also tell you that there is a big penalty to pay? I forget the percentage but mine was $7,000 - I would recommend any other means if at all possible
October 13th, 2009 at 10:55 pm
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It depends on the particular plan of the company you work for. See what the rule are for a hardship withdrawal. The other people you see mentioning taking money out might have qualified for that under their company’s plan. Unless you qualify, you can’t take it out.
October 14th, 2009 at 1:32 pm
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It sounds like you are still working for the employer sponsoring the 401(k) plan. If so, then your representative is correct; the only way to cash out while still employed for them is to qualify for a hardship withdrawal.
After you stop working for that employer, however, you are permitted to cash out your assets in the plan.
October 15th, 2009 at 5:06 am
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I would try anything possible to not do this. Aside from the fees, taxes, and penalties you will pay, you will be sacrificing a lot of long term wealth to pay off debt today. If you can find another way to pay off the debt, you will be in much much better shape.
October 16th, 2009 at 4:16 am
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Most plans will let you cash out only if you separate from service (ie. quit or be fired).
October 16th, 2009 at 7:34 pm
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Are these people cashing in their 401k early, people who are older and retired? As Plea_of_insanity states, there is no legal way to withdraw from your plan (while still employed) unless you qualify for the Hardship withdrawal or take a loan on your 401k.
BTW Plea_of_insanity, you tricky tricky man. Asking questions you already know the answer to! Tsk Tsk! ;P I wondered why you looked familiar…
October 20th, 2009 at 3:41 am
Create a video blog…instantly.
I would aviod this if you could. You will pay at least a 10% penalty to the IRS for withdrawaling plus the amount of money taken will be subject to tax. Remember, you did not pay taxes on your 401k contributions.