Comments on: The Real Cost of Withdrawing Retirement Funds Early

By: David Toelkes

David Toelkes — Fri, 29 Jan 2010 04:58:14 +0000

Sarah,

I think you had it right. You do get taxed on the money twice when you take a loan from the retirement account.

When you take a loan from a tax advantaged retirement account, you repay the loan with after tax money. When you make normal withdrawals or are forced to take a required minimum distribution, the amount withdrawn is again taxed at your ordinary income tax rate.

So yes, the amount of the loan you took from the retirement account is eventually taxed twice.

By: Ryan

Ryan — Thu, 03 Dec 2009 04:09:42 +0000

David, I recommend speaking with a tax professional, ASAP. You won’t have to pay early withdrawal penalties if the money is rolled into an IRA quickly enough. However, I’m not sure of the exact details of your case, so it’s best to speak with a professional. Best of luck!

By: David Scott

David Scott — Tue, 01 Dec 2009 22:26:37 +0000

My company stopped working with a service that took care of our 401K.

I called to see what I needed to do, they said I could just leave it there and
not have to do anything. The next month I got a check from them and the taxes were taken out. I called and told them I had not asked for this and way I got this. They told me that I would have to take this up with the IRS and that they had given me the wrong information and they were sorry. But that they either could not or would not do anything else.

I put all of the money into a IRA but I still had $4,000 taken out and sent to the IRS. I don’t have enough money to make up the $4,000 that was sent to the IRS will I be penatlized on that $4K since I did not have the money to re-do the IRA? I don’t have the money the government does?

HELP!!

By: Ryan

Ryan — Wed, 25 Nov 2009 11:56:09 +0000

Asher, it’s tough to say without knowing your full tax situation. Basically, it will be a 10% penalty, then state and federal taxes at your tax rate. For more information you should contact a tax professional or the IRS.

By: asher

asher — Wed, 25 Nov 2009 05:19:16 +0000

What will be the net after taxes and penalties (federal, state and penalties) in the case of early withdrawal.
Thanks.

By: Sarah

Sarah — Sat, 17 May 2008 03:30:28 +0000

Oops, I got that wrong – you don’t get taxed when you borrow the money. But it’s still a bad idea

By: Sarah

Sarah — Mon, 12 May 2008 03:11:35 +0000

Borrowing is bad, too – you get taxed twice. Once when you borrow the money (it’s taxed as income), and then you pay it back with income you’ve been taxed on.

By: Ron@TheWisdomJournal

Ron@TheWisdomJournal — Fri, 09 May 2008 01:08:44 +0000

I’m just glad that I can’t withdraw anything on my retirement. As a participant in an ESOP, it isn’t even available to me. Woo Hoo!