Question
Is there a tax guru out there who is familiar with 401k Plans? I am thinking on using my 401K 4 college?
I currently have $5000 in my 401k plan which I would like to use to go back to college. I have a few questions: 1.If I take al the money out to go to school would I be penalized? If yes more or less what percent would I have to pay? 2.Would I be eligible for a tax break when I file my taxes? If yes more or less what percent. 3.I understand that there benefits offer by this administration to working adults who go back to school. Any idea what the benefits are? 4.Last year I took out 1200 for a computer class. Last week I received a 250.00 bill from the IRS. Is there a way to avoid this?
6 months ago - 7 answers
Best Answer
Chosen by Asker
If you take out $5000 of your 401K before reaching the age of 59 1/2, you will be charged income tax and a penalty as follows; Income Tax : Approximately $1000 (20% X $5000) Penalty: $500 (10% X $5000) Total = $1500 You can claim your education expense as a non-refundable credit, which will lower your tax liability. If you cash out your retirement funds early, you will have to pay tax and penalty
by Ali M
6 months ago
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Other Answers
1. Yes. Any money taken out for college will be taxed at your marginal rate and there will be a 10% penalty in addition to any taxes due. 2. No. 3. No idea. Go to www.USA.gov to search for anything that could be of interest. 4. No way to avoid the penalty.
by MadMan- 6 months ago
Check with the company that your account is administered thru. There are "ways" to get your money without the 30% penalty. First time home buyers, avoiding foreclosure, etc. but you must provide documentation per your plan. IE: My 401k plan has a website that answers all the questions specific to my plan. The company that i work for provided the logon information for the website... I can go online and change the stocks, etc. Even downloadable withdrawal forms. You will be penalized approx 30% for anything that doesnt qualify as a HARDSHIP withdrawal... of course, if your plan allowed it, you could BORROW from your money... of course, you would have to pay the plan back. Note: Most people fake documentation and do the withdrawal... but I didnt tell you that... lol PS: When you put the money into your 401k, you didnt pay PAYROLL taxes, which no matter WHICH way you go about it (besides the 401k LOAN), you WILL have to pay. If there is no HARDSHIP on your withdrawal, you will have to pay the Additional penalty.
by john- 6 months ago
there are exceptions for IRA withdrawals but not 401K People often get these mixed up and take money out of their 401K thinking they can avoid the penalty but the exceptions for penalty do not apply for 401Ks
by michael971- 6 months ago
I'm no expert, but cashing out your 401k is a very very bad, bad idea. It's meant for your retirement and to take money out would mean HUGE penalties. Depending on your company's 401k plan, your company might put other penalties on your retirement plan too, such as not contributing anymore. But you can take out a loan out of your own 401k plan usually without penalties. You would pay back the loan and all it's interests goes back into your 401k. But that's not usually recommended because your work's 401k plan might have other restrictions. Some financial planners would suggest that if you're going to take out a loan, might as well take out a Federal student Stafford loan instead.
by R.F.- 6 months ago
If you take money out of your 401K you'll have to pay tax on the amount withdrawn, plus a 10% penalty for early withdrawal (I assume you're under age 59-1/2) - you have to pay the penalty even if you don't make enough to pay income tax. And you usually can't withdraw from your 401K if you are still employed there, although then you could most likely take a loan against part of it. If you aren't working there any more, you'd be able to withdraw it. If you are in college and are not a dependent, you'd very likely be eligible to claim an education credit if you are paying any income tax for the year. If you don't have enough income to pay federal income tax, the education credit doesn't give you anything. You are probably referring to retraining benefits if your industry, for example, moves out of the country - that's not for people who just quit their jobs to go back to school. You might be able to get some student financial aid - fill out a FAFSA form to apply. No way to avoid paying the tax on a 401K withdrawal.
by Judy- 6 months ago