Withdrawing 401K

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eakgul's picture
eakgul
Status: Member (Offline)
Joined: Feb 22 2012
Posts: 1
Withdrawing 401K

 Hi all - I have a question about withdrawing 401K. I have worked in the US for 4 years and have about 30K in my account. I am thinking of withdrawing my money from 401k and I know everyone will scream no but please read below to see if it makes sense for me. 

Facts:
- During 2012, I am a student again and will have no income otherwise, which will put me on a very low tax bracket.
- I live outside of US, and will not have to do state taxes (I hope this is true, can someone tell me if this assumption is wrong)
- I never intend to return to the US
 
Questions:
- In this situation, I assume that I will need to pay a 10% penalty and income tax, which should be around 10%, provided I have no other income. Is there anything else I need to pay?
- Given all this, does it make sense? (Please no arguments about this being worth a million in 50 years, we all know that net present value of that amount right now is $30K)
 
PastTense's picture
PastTense
Status: Bronze Member (Offline)
Joined: Dec 13 2010
Posts: 47
Check your account info.

When I withdrew money from my self-employed 401K, my broker with-held 20% for the federal government and 5% for my state for taxes. (Being over the retirement age I didn't have to pay the 10% penalty). So it could well be that your broker will hold back a substantial amount for taxes--which you won't be able to access until after you file your tax return and get a refund. Talk to the people in charge of your 401K about this.

Woodman's picture
Woodman
Status: Diamond Member (Offline)
Joined: Sep 26 2008
Posts: 1028
I would ask yourself more

I would ask yourself more questions to see if this makes sense for you.  Why do you want to withdraw from your 401K?  Because you expect low or no growth in value for the available investment options within your 401K plan, and/or you expect higher taxes in the future?  Or because you need the money now?  Will you invest the money in something else with greater potential for future return, and are you disciplined enough to do so?

Another option  may be to roll over your 401K into an IRA, then convert to a Roth IRA.  You would pay tax, which for you is fortunately a low bracket right now, but I think you would avoid the 10% penalty.  After 5 years I think you can withdraw the principle from your Roth IRA without paying the penalty, even if you are not retirement age yet.

 

 

tomccoy1's picture
tomccoy1
Status: Member (Offline)
Joined: Nov 8 2010
Posts: 21
401K Withdrawals

 I am also considering withdrawing money from 401K, for different reasons.  Often US 401K programs have limited investment options which often do not include investments such as gold or energy stocks for example.  I am also concerned that the Govt. will come after the 401K money as it has been a tremendous benefit in deferring income for decades.  In an emergency type event, I wonder how accessible these funds really are.  Out of all investments, 401Ks seem to be very locked in, and easily subject to addtional government taxation, control, and general tyranny.  Think about how secure Greeks think their equivalent 401K investments are at this point.  

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