I need to withdraw my 403k for hardship. How much in penalties should I expect to pay.?

Question

I need to withdraw my 403k for hardship. How much in penalties should I expect to pay.?

Answer 1

There's no such thing as a "403(k)."  There's a 401(k) and a 403(b).  Different rules apply so we'd have to know which one you have.

Answer 2

If you are 59 1/2 years old you will pay a 10% penalty plus the amount that you withdraw will be taxed at what will become your marginal tax rate.  If your state has a similar treatment you will pay something near 50%.

Answer 3

Unless you meet an exception, you will pay income tax on the entire distribution, plus an additional 10% penalty.  So, it could easily be 25%.  Your financial institution may withhold 20%.  If the distribution puts you in the 15% tax bracket, you should count on paying more tax than what is withheld.

Don't forget that state taxes may also be due, and those are usually not withheld from the distribution.

If your hardship is due to large medical bills, you may reduce or eliminate the penalty.

Answer 4

Check with your retirement plan.  Have you considered taking out a loan against your balance?  Its not the best solution in the world, but if your "hardship" is short term, you can avoid the taxes and penalties by loaning yourself the money.  If you default on the loan, the taxes and penalties still apply, but if your can swing the loan payments its an option.  Most plans let you loan yourself the money at around 8% interest which goes back into your account.  Of course you only get the 8% return during this time as the loan amount is not available for investing.  Generally speaking you can only borrow up to 50% of your account balance.  Also, many plans require that the loan payments be through payroll deduction.

Hope this helps and GOOD LUCK.

Answer 5

As everybody has already said, if you are not 59.5 years old or more, there will be 1) a 10% penalty, plus 2) federal income tax which depends on what tax bracket you are in based on filing status and total income, plus 3) state tax which depends on your state.

If your hardship is medical bills, you can avoid the 10% penalty.  To do this, 1) open up a traditional IRA at your favorite bank. 2) do a rollover from your 401k/403b into that IRA - make sure you do a bank-to-bank transfer so they money never goes through you.  3) take the money from the IRA to pay your medical bills.  The advantage is that a 40?/? to IRA transfer that goes bank-to-bank is a completely non-taxable non-penalty event.  And taking money from an IRA to pay medical bills in excess of 7.5% of your gross income is an exception to the early withdrawl penalty.

No matter what you do, there is no escaping federal and state income tax so be ready to pay some when you file your taxes next year.

Answer 6

The penalty alone is 10%.

The total tax bill will depend on your total income for the year.

Many people end up paying over 40% in taxes and penalties when cashing out a retirement plan early.