Quote:
Originally posted by ARTelevision
I'm considering cashing in a 401K.
The fact is I want to re-invest it in real estate but I guess that's not a valid investment. Besides the fact that it bugs me I can't just put it where I want without penalty, I could use some info regarding what's involved in cashing in.
I hear there's about 20% penalty on the amount. Is that about right? When does it come due?
As you can see I really have a simple question. What do I need to know about cashing in this thing?
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Cashing in a 401k is generally a bad idea. You would have to really make a killing in the investment to make up for the taxes and penalties.
1st off, since the money was probably taken from pretax pay, you will be responsible for whatever the tax rate would have been.
Secondly there's a 10% penalty (there are exceptions to this like if you're buying a home for the first time, or in some other cases like educational expenses but it's rare that these exceptions ever apply).
You're probably looking at closer to a 30%+ reduction in the amount you take out. If you're a homeowner already, it would likely be better to take out a home equity loan or do a cash out refinance of your existing mortgage (depending on the interest rate you currently have) as they can reduce your tax burden rather than increase it.
I'm sure others will be able to offer similar or better advice...