Friday, January 1, 2010


Sometimes in our life, emergencies come when you find yourself in a financial crunch. If you have not made an emergency fund, the only thing that you can do is to have to obtain the money is your 401(k). That's why you should do investments in the 401k while working. Then after few years, your investment will take a good shape. Nevertheless, prior to withdrawing the money, you must figure out how much it would essentially cost you. Money withdrawn can be utilized for various purposes. You can also utilize it for settling your debts through familiar debt settlement programs like Debt Settlement. You would be in a more comfortable position if you obtain a 0% credit card or home equity line of credit.

* Figure out the federal tax rate you have been paying. When you withdraw the money from your 401(k), it is regarded as income. Since the withdrawal is from pre-tax money, it has to be taxed. For most of the American citizens, the federal income tax rate varies from around 15%-35%. See your most recent tax return to determine your federal income tax rate. In addition, beware that the withdrawal made by you does not push you to a new tax bracket.

* Verify the state income tax that you paid in the past year. Unluckily, this amount of money also has to be taken out.

* Sum up 10% with the withdrawal amount from the investments in the 401k to find your ultimate answer. For example, if you are withdrawing $30,000 for buying a car and you fall in the tax bracket of 20% in a state with a federal income tax rate of 5%, your $30,000 withdrawal would just leave you with $20,000. You would have to lose $6,000 for the federal income tax, $3,000 for the penalty and $1,000 for the state income tax.

* Confirm that you are not eligible for a deduction from the penalty. There are particular events (such as a life-threatening disease) where you can prematurely withdraw your money from your investments in the 401k without any penalty.

You can take out a loan against your 401(k) for fulfilling particular objectives. Loan money is normally restricted to 50% of the value of the 401(k) up to $50,000 with a time period of 5 years to pay off the money. In addition, you are returning the money to yourself. You barely might prevent all the penalties. Don’t forget to amend your budget if you are making premature withdrawals and sustaining penalties. Save money through more investments in the 401k to compensate the shortfall in future.