401k hardship withdrawl (bankruptcy, income, tax rates)

[manderly6]

Originally Posted by CaptainNJ

so you get a little bit of a refund and you lose access to triple the amount of the refund. you get nothing except lost access to your own money. you can only benefit if taxes are lower when you retire, but nobody is guaranteeing that.

Personally I'm banking on my tax rate being lower after I retire. Call me a rebel.

[CaptainNJ]

Originally Posted by manderly6

Personally I'm banking on my tax rate being lower after I retire. Call me a rebel.

financial professionals that work on commission would tend to agree with you. 401k money is great for them, guaranteed deposits every month.

i understand there is a potential benefit, but for me that chance isnt worth what you give up and there is always the potential it hurts you. im pretty sure we all expect social security to be means tested at some point in the future. what if your 401k is a part of that? you were "smart" and prepared for the future by filling up your 401k and that costs you potential social security income. however, that scenario could also include all assets so i would get hit by that also (as i expect to).

[trinity1111]

If someone[under 55] gets laid off from their job, [their 401k was employer matched], and no hardship can be proved,
how does one get full distribution? What is that ''less 20%'' figure? How does the IRS determine tax liability?

[trinity1111]

Did you mean literally "quit" your job? What if someone is Terminated,with or without cause?

[EBWick]

Originally Posted by trinity1111

If someone[under 55] gets laid off from their job, [their 401k was employer matched], and no hardship can be proved,
how does one get full distribution? What is that ''less 20%'' figure? How does the IRS determine tax liability?

You can access your 401(k) money upon termination but you'll pay taxes on the money taken out at ordinary income tax rates (say 25 or 28%) plus a 10% early withdrawal penalty. Similar to what would happen if you took an early withdrawal from an IRA before age 59 1/2.

Check with your plan administrator. If you happen to still be employed they may have in-service withdrawals available. The other option is a plan loan if still employed.

[trinity1111]

Any more detail on this tread is appreciated...it's a catch 22, getting employment terminated due to losing security clearance due to financial hardships, but none that qualify under hardship stipulation. Could really use $401k funds to get stabilized again..willing to take heavy tax hit...thanks

[sonofagunk]

Originally Posted by trinity1111

If someone[under 55] gets laid off from their job, [their 401k was employer matched], and no hardship can be proved,
how does one get full distribution? What is that ''less 20%'' figure? How does the IRS determine tax liability?

The company in charge of your 401K is required to hold back 20% in taxes (you might owe more, might owe less). There is also a 10% that will be accessed at tax time as a penalty.

Since you are now umemployeed (and it is 2013) and have very little income you will be paying less taxes on the money than if you had paid taxes on it when you earned it. So it probably saved you a bunch of money

The real question is if you WANT to do this. There is still a chance that you will lose your house, and then you will have no retirement money (another benefit of putting money there, it is protected from bankruptcy in most cases as well as not considered in most cases as wealth when applying for financial aid for you kids and college). It might just be better to file for bankruptcy, clear all of your debts and move on.

[JanND]

You need to file a bankruptcy....and protect your 401k....Get rid of any credit, unsecured debt and dump the house in the bankruptcy unless your bankruptcy attorney can figure out how to save it for you. Depends on many variables regarding how far behind you are etc. Talk to an attorney about bankruptcy. I'm no financial wizard, but if your retirement is set up where you can't borrow any of it, I'd look at my other options. Good uck to you...and sorry for your troubles.

[trinity1111]

Thanks for information. And yes, I'm filing BK chap. 7. later this year, so maybe a better strategy is to leave money
in there if it indeed is protected.

[cw30000]

If you live in Jersey, chance is you cannot save the house. NJ/NY has the worst exemption limit in the country. If I am not mistaken, the limit is 50k.

If you live in Texas or Florida, you can file for chapter 11 and still keep you home.