How Do You Determine Penalties For 401K Early Withdrawals?
Sometimes in life emergencies arise where you find yourself in a cash crunch. If you don’t have a reserve, the only place you may be able to get the money is from your 401k. However, before you yank the money, you should determine how much it is really costing you. You may be better of taking a home equity line or 0 percent credit card. Determine what federal tax rate you are paying. Once you take the money out of the 401k it is considered income. Because the withdrawal is from money that is pre-tax, it needs to be taxed. The federal income tax rate runs from roughly 15 percent to 35 percent for the majority of Americans. Check your previous tax return to find yours. Also, watch out that the withdrawal you are taking doesn’t bump you into a new tax bracket. Check the state income tax you paid the previous year. Unfortunately that amount of money needs to be removed as well. Add 10 percent to the amount of the withdrawal you are making to get your final answer. For instance if you are t