can you cash out a 401k for home improvements?
We need to build a new deck. We do not want to get a second mortgage. The 401k has about 6000.00 in it. Its from a job my husband left 6 years ago. It is also losing about 60.00 a month the last few months. I know you have to pay a 10% penalty and taxes on the money. But to cash it out do you have to tell them what you are going to use the money for?
- 1 decade agoFavorite Answer
They are going to ask what you what it for (I normally just tell them unexpected expenses), but yes you can. You know about the penalty and taxes, so no suprises for you there. If the market does not improve, and you decide to borrow from yourself instead of cash out, the interest you pay yourself might be more than your normal return!
- JeanneLv 44 years ago
To satisfy the requirements of the IRS, when you cash in your 401k your employer will, by law, withhold 20% (you can request a greater withholding but not less) of the final amount and in turn will pay that to the US government. At the beginning of next year (2014) your former employer will issue a 1099 form to you showing that 20% payment to the IRS. When you file your Income Tax documents next year for tax year 2013 you will list that deducted amount as a credit in the space provided on your 1040 form. On the same form you will show your allowable credits for home improvements as well as other income and credits you have received throughout the year (i.e. W-2, 1099 Interest income, deductions, etc.). I'm sure you know the drill very well. In the end, like always, if you overpaid you will get a refund. If you still owe money Uncle Sam will extend his palm for the balance due.
- FKCLv 41 decade ago
Not sure about cashing out, but what you can do is take a 401 loan for home improvements. Then you're paying yourself back at a guaranteed rate of interest. At my work, they just deduct the payments from my check automatically. Take the loan over the longest period of time allowed and the payment will be relatively small.
- Common SenseLv 71 decade ago
Don't borrow or withdraw from a 401K. Don't use the fact that it's losing money as a excuse (you need to educate yourself on how they fluctuate).
Here's the bottom line..... when you're 65+ and you need money to live on...... the deck won't be that important.
Save for the deck!... leave your retirement money alone.
If you withdraw this money.....you'll consider this one of the biggest financial mistakes you've ever made. If you have kids...... what are you teaching them by having such a small view..... they'll never understand delayed gratification.
Educate yourself, live in reality & you'll be fine!
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- 1 decade ago
don't cash it.. the best thing to do is to borrow from your 401k.. and you can pay it back up to 5 years... this way you don't loose it and you don't have to pay penalty or tax... and it is money you pay yourself back.. and usually the interest is very low like 4.5%.....
but before doing that try maybe to postpone it till next year and try to save for it.. because this way your saving will make more money... and you will not use 401k that is making you money.. because every money you take it dicrease your investment and your earning in the long time..
- The ProfessorLv 51 decade ago
Hmmm...reducing funds available for your retirement to build a deck? That would be very unwise. You can always borrow money to make home improvements (like a deck) but you will never be able to borrow money for your retirement. Leave the money in the 401(K) as you'll be needing it in the future.Source(s): I'm a financial planner.
- Anonymous1 decade ago
I think you should pretend it doesn't even exist. Let's assume you have 35 years to retirement, if you leave it alone (assuming it is in stocks, which is where it should be), you can realistically expect it to grow to somewhere between $89,000 and $600,000 by the time you retire. If you take it out, you will pay a 10% penalty (reducing it to $5,400) plus income tax at your current rate (reducing it to somewhere between $3888 &$4500, depending on your tax rate).
You would have to be crazy to choose $3,888 next week over $600,000 at retirement, wouldn't you?
- David MLv 71 decade ago
You can cash it in for any reason you choose, but is amongst the most stupid financial decisions you can make. First you get penalized both by taxes and an additional penalty. And you're stealing from your retirement for a stupid deck. Your idea is incredibly stupid, but it sounds like you've made up your mind anyway.
- kapnLv 71 decade ago
Assuming you can eat your deck when you retire......go ahead and cash it out..............
You will lose......10% and they will hold back 20% for IRS......so you will get 4200..........really dumb move..............they don't care if you pile it up on the garage floor and burn it........cause thats what you will do when you lose $1800 bucks.........