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 Money withdrawn can be utilized for various purposes.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.