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Thread: Question about 401K matching

  1. #1

    Default Question about 401K matching

    If I didn't care about investment, or tax deferring, can I theoretically cash out my employer's contribution every year?

    If so, how much would I be taxed altogether (for the amount I cash out)?

    For example, if I contribute $300 a month to my portfolio, and my employer matches it with $300. Could I cash out $7200 a year, minus taxes?



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  3. #2

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    There is an early withdrawal penalty of 10% for taking money out before you are 59.5 years old.

  4. #3

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    Also many employers require you to become vested in the plan before their matching contribution is really yours to keep.

  5. #4

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    Quote Originally Posted by brandon View Post
    Also many employers require you to become vested in the plan before their matching contribution is really yours to keep.
    in other words, they only match it if you stay, if you cash out you essentially surrender their contribution?

  6. #5

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    Quote Originally Posted by brandon View Post
    There is an early withdrawal penalty of 10% for taking money out before you are 59.5 years old.
    so I'd lose (15% income tax + 10% penalty) of it altogether?

  7. #6

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    Quote Originally Posted by brandon View Post
    There is an early withdrawal penalty of 10% for taking money out before you are 59.5 years old.
    Can you even cash out anything from your 401(k) while you are still employed at that employer?
    Twitter: B4Liberty@USAB4L
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  8. #7

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    Quote Originally Posted by WaltM View Post
    in other words, they only match it if you stay, if you cash out you essentially surrender their contribution?
    They should have a vesting schedule for you.
    Twitter: B4Liberty@USAB4L
    "Foreign aid is taking money from the poor people of a rich country, and giving it to the rich people of a poor country." - Ron Paul
    "Beware the Military-Industrial-Financial-Corporate-Media-Government Complex." - B4L update of General Dwight D. Eisenhower
    "Debt is the drug, Wall St. Banksters are the dealers, and politicians are the addicts." - B4L
    "Totally free immigration? I've never taken that position. I believe in national sovereignty." - Ron Paul


    The views and opinions expressed here are solely my own, and do not represent this forum or any other entities or persons.

  9. #8

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    Quote Originally Posted by WaltM View Post
    in other words, they only match it if you stay, if you cash out you essentially surrender their contribution?
    All employers have their own rules. At my job I need to work there 2 years and then I become fully vested in the 401k. They match 100% up to 5% of my gross income.

    Quote Originally Posted by Brian4Liberty View Post
    Can you even cash out anything from your 401(k) while you are still employed at that employer?
    I don't know. I think you can cash out what you are vested in at anytime...but not totally sure on this one.

    Quote Originally Posted by WaltM View Post
    so I'd lose (15% income tax + 10% penalty) of it altogether?
    Yes... kind of...Probably a lot more than 15% income tax. Whatever you withdraw is treated as normal income for the year...so chances are if you had a job contributing to a 401k, and you took 401k distribution on top of your salary, you would be far above the 15% income tax bracket. The money is also subject to state/local taxes, etc

  10. #9

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    Quote Originally Posted by brandon View Post
    All employers have their own rules. At my job I need to work there 2 years and then I become fully vested in the 401k. They match 100% up to 5% of my gross income.


    I don't know. I think you can cash out what you are vested in at anytime...but not totally sure on this one.



    Yes... kind of...Probably a lot more than 15% income tax. Whatever you withdraw is treated as normal income for the year...so chances are if you had a job contributing to a 401k, and you took 401k distribution on top of your salary, you would be far above the 15% income tax bracket. The money is also subject to state/local taxes, etc
    fair enough, so I guess it's not as 'free money' as I thought, but if the contribution doubles what you put in, it at least adds to the cushion of what you can lose before you cash out and break even.

  11. #10

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    Maybe this will help:
    http://www.ehow.com/how_5217651_calc...penalties.html
    Generally, if you are under 59 years old early withdrawals from a 401K are tax penalized. There are exceptions to these rules; the "Plan" may allow some types of early distributions with no penalties. To qualify for these exceptions you have to read the company's 401K plan or discuss your situation with your Human Resources staff. Use these tips to help you calculate 401K early withdrawal penalties and evaluate other alternatives.
    .Difficulty: Easy

    Instructions.

    Step 1
    Tax Liabilities

    Understand the payments due for early 401k withdrawal. There are two payment components for early withdrawal: The first one is the tax bill on the distribution's income for federal and state. The second is the tax penalty required by most plans.

    Step 2
    Federal Tax Due

    Determine your federal income tax rate to calculate 401K early withdrawal tax due. The total amount of the distribution you take out is taxed at your federal tax rate. For example taking out $10,000 from your plan will leave you with a tax bill of $2,800 if your rate is 28%, assuming that the distribution is all income.

    Step 3
    State Tax Due

    Estimate your State income tax bill on the 401K withdrawal. If your state income tax rate is 8%, you will owe $800.00 to the state on the $10,000 distribution, assuming all is income again.

    Step 4
    Tax Penalty

    Start calculating 401k early withdrawal penalty. IRS rules generally require that the plan charge a 10% tax penalty for early withdrawal, unless you qualify for an exception. This is in addition to the income tax due for early withdrawal. In our example this penalty is equal to $1000.00.

    Step 5
    Options to 401K Early Withdrawal

    Consider other options to early 401K withdrawals. Because the taxes and the penalties can be high depending on the amount of the withdrawal and on your tax rates, consider taking a 401k loan instead. Loans are given at very favorable interest rates and the interest goes into your 401k account.

    Find out if your 401k early withdrawal qualifies for one of the government exceptions before taking a distribution. Read your plan guidelines or discuss with a Human Resources staff.

  12. #11

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    Quote Originally Posted by WaltM View Post
    fair enough, so I guess it's not as 'free money' as I thought, but if the contribution doubles what you put in, it at least adds to the cushion of what you can lose before you cash out and break even.
    It's not free money. It's part of the compensation package your employer is giving you for your services. There should be no reason to cash out your 401k early. It is for retirement. Back a decade ago most employers offered pension plans instead of 401k plans.
    Last edited by brandon; 07-20-2010 at 07:41 PM.

  13. #12

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    Mostly good advice here. I'm a Financial Planner so I deal with this stuff every day.

    You will pay tax (ordinary income level) plus penalty (10%) if you take it out. Vesting is mandatory at 5 years, so not sure how long you have been there, so if you just started you may not be vested.

    Now the big question is does the 401(k) plan document allow for 'in-service withdrawals'? Your 401k providor should be able to answer this, HR might know but in my opinion most HR Depts. don;t know much about thier plan.

    What is your goal, just to pull out the money and buy stuff? Do you want to invest it, you might be able to roll it into an IRA where you can invest in anything just about. Or, were you wanting to buy precious metals, you can lobby to HR to add a precous metals fund.

    If you have more specific questions PM me.

    Best,

    Koz

  14. #13

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    Quote Originally Posted by Koz View Post
    Mostly good advice here. I'm a Financial Planner so I deal with this stuff every day.

    You will pay tax (ordinary income level) plus penalty (10%) if you take it out. Vesting is mandatory at 5 years, so not sure how long you have been there, so if you just started you may not be vested.

    Now the big question is does the 401(k) plan document allow for 'in-service withdrawals'? Your 401k providor should be able to answer this, HR might know but in my opinion most HR Depts. don;t know much about thier plan.

    What is your goal, just to pull out the money and buy stuff? Do you want to invest it, you might be able to roll it into an IRA where you can invest in anything just about. Or, were you wanting to buy precious metals, you can lobby to HR to add a precous metals fund.

    If you have more specific questions PM me.

    Best,

    Koz

    If you weren't in the business now, would you still enter it? Any recommendations for someone considering a career in financial planning/analysis?

    As a junior broker/planner, I assume I'd be tasked with 24/7 cold calls on bigwigs at local businesses?

    Maybe I should just PM you.

  15. #14

    Default

    Quote Originally Posted by Koz View Post
    Mostly good advice here. I'm a Financial Planner so I deal with this stuff every day.

    You will pay tax (ordinary income level) plus penalty (10%) if you take it out. Vesting is mandatory at 5 years, so not sure how long you have been there, so if you just started you may not be vested.

    Now the big question is does the 401(k) plan document allow for 'in-service withdrawals'? Your 401k providor should be able to answer this, HR might know but in my opinion most HR Depts. don;t know much about thier plan.

    What is your goal, just to pull out the money and buy stuff? Do you want to invest it, you might be able to roll it into an IRA where you can invest in anything just about. Or, were you wanting to buy precious metals, you can lobby to HR to add a precous metals fund.

    If you have more specific questions PM me.

    Best,

    Koz
    I'm not employed in a job that has 401k, so I just wanted to know how to manage this if I ever do have to decide.

    thanks!!

  16. #15

    Default

    Quote Originally Posted by WaltM View Post
    in other words, they only match it if you stay, if you cash out you essentially surrender their contribution?
    I know my employer does the match once a year at the end of the year, in a lump sum. That is their version of VESTED.

  17. #16

    Default

    My employer offers no matching at all so I do my own investments.






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