401K questions

[Hadassah]

Can someone help me with some questions about a 401K? What are the tax consequences to terminating the 401K plan? Are there certain conditions under which a person can terminate their 401K? Do I have to quit my job to terminate my 401K?



I tried finding the plans info about this on their website and I cannot understand it at all! :confused:

[MrShotShot]

OK, 401,000 questions - hit me.

Just kidding.

Honestly, you should go talk to a tax advisor before making any decisions.

But when you say terminate, do you mean just stop paying into it or do you mean liquidating it? If you just want to stop paying into it, you can do that without any problems. The fund will just sit there with no new contribution and grow based on market return (I know, I'm an optimist). If you actually mean liquidate the fund, then there are significant penalties and taxes that you'd have to pay - again, see a tax advisor. You might be able to roll it into a Roth or something like that w/o penalty, but again - tax advisor.

So, yeah, go see a tax advisor.

[Dreamy]

Do you plan to rollover the funds when you terminate the 401k? It might help you to avoid early withdrawal penalties which are steep.

Are your funds vested?

If you cash it out, you will very likely owe taxes plus a 10% penalty.

[Dreamy]

OK, 401,000 questions - hit me.

Just kidding.

Honestly, you should go talk to a tax advisor before making any decisions.

But when you say terminate, do you mean just stop paying into it or do you mean liquidating it? If you just want to stop paying into it, you can do that without any problems. The fund will just sit there with no new contribution and grow based on market return (I know, I'm an optimist). If you actually mean liquidate the fund, then there are significant penalties and taxes that you'd have to pay - again, see a tax advisor. You might be able to roll it into a Roth or something like that w/o penalty, but again - tax advisor.

So, yeah, go see a tax advisor.

Always good advice. The plan admin as well as the IRS can advise. I would only terminate when no other option exists.

[MrShotShot]

You might be able to get some idea of what's best for you by calling into a financial talk show - seems like almost every radio and TV station in my area is offering that these days. Even Sean

[WJStafford]

Most 401K programs have limitations set regarding withdrawals. Usually you have to prove financial hardship if you aren't leaving your job. It'll cost you dearly in penalties and taxes so I would avoid it if you can.

[ArmyMAJretired]

You can not terminate your 401 (k) plan as long as you are employed by the company as far as I know. you can stop contributung.

If you leave your company you can get the money and will be taxed at your normal tax rate (15%, 25%, 35% ETC) plus A 10% PENALTY!

There may be loan provisions, you pay yourself back after taxes with interest. If you terminate when a loan is out and do not immediately repay it, it is treated as a dispursement and taxed with penalty approriately.

[Joeybear23]

401k funds withdrawn early are subject to normal income tax and a 10% penalty from the IRS.

There are some exemptions for the taxes, but I don't believe you can get around the penalty.

[MR. MISTER]

If you leave your company you can get the money and will be taxed at your normal tax rate (15%, 25%, 35% ETC) plus A 10% PENALTY!

You can roll it into an IRA without taxes or penalty.

[ArmyMAJretired]

You can roll it into an IRA without taxes or penalty.

Yep, but the OP was about terminating.