401 K cash out question?

Question

I am looking to cash in my 401k (only has a few thousand in there) to pay off a credit card or two. It doesn't make sense to me to keep the money there when we are drowning in debt. I know right off the bat I'm going to be loosing about 35% cashing out. What is the easiest way of doing this - and do I have any smarter options.

Answer 1

Well, the money you take out will be added to your taxable income at the end of the year so you will pay federal and state income taxes on it.

You will also have to pay a 10% additional federal excise tax for the early withdrawal. Your state may also impose an additional excise tax.

Is this where you got your loss of 35% estimate from?

I recommend you go ahead and cash out, suck it up, pay the piper, and start over again. nobody gets it all right the first time. This is an inexpensive graphic lesson that may actually end up benefiting you in the long run if you can turn things around and not fall into the same traps in the future.

Answer 2

Actually you can easily loose 1/2 of the money. This is to be done only as a last resort.