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What is the penalty for borrowing from your 401-K?

I know you can have taxes taken out, but what is the penalty for early w/drawl & is it a flat rate or based on the amt. taken?


Asked by mrsmom110 at 5:41 PM on Apr. 2, 2013 in Money & Work

Level 48 (285,071 Credits)
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Answers (9)
  • BIG! 25% tax, or more, now if you are taking a loan out for a car etc,, you can borrow money, at a pretty low interest, but to just take out a chunk of change will be almost 1/2 of what you cash in, if things are that serious, sweetie , you need to talk to your son, and make some major cut backs!

    Answer by jerseydiva at 6:42 PM on Apr. 2, 2013

  • It depends on your 401K plan. There are some differences depending on who is the carrier.
    There is a substantial monetary hit as wellas the taxes that have to be paid. It depends on how close to maturity it is (how ld you are) and how long it has been in the account.

    It is considered to be the very last thing you should ever touch. Taking out a loan is considered a better idea.

    Answer by Dardenella at 5:49 PM on Apr. 2, 2013

  • Each place is different but, there are actually legit reasons that there's usually no penalty for.


    Answer by 3libras at 5:43 PM on Apr. 2, 2013

  • Can you just stop making contributions to your 401k and see if the difference helps? If you take a loan against it, but have payments taken out of your paycheck to pay it back, you shouldn't get penalized. If you just take a lump sum, you would be looking at up to 35% penalty....which is a LOT. Not to mention what you would be missing out on in compounding interest.

    Answer by slw123 at 7:30 PM on Apr. 2, 2013

  • After it matures nothing before then it depends on the amount and the institution it is from..

    Answer by older at 6:04 PM on Apr. 2, 2013

  • My dh had to take his out when he lost his job so we could get by. He had eleven thousand, we got a check for nine thousand and had ended up getting a smaller tax return the next year. Just make sure of the laws in your state if you are unemployed. It affects your unemployment payments.

    Answer by Anonymous at 6:25 PM on Apr. 2, 2013

  • What slwt just said. There is a difference between borrowing against it an taking money out of it. Try just stopping your contributions instead.

    Answer by LoveMyDog at 7:42 PM on Apr. 2, 2013

  • We borrowed from Sos. The tax return was not affected. We paid 3% interest, but paid it back into the 401k.

    I don't think any bad came of it.

    Answer by staciandababy at 8:52 PM on Apr. 2, 2013

  • If we could just pay down some bills, we might be OK. It's so frustrating that EVERYTHING goes up except our pay checks! We can't keep up any more :(

    Comment by mrsmom110 (original poster) at 7:19 PM on Apr. 2, 2013