Author Topic: How to take money out of 401K without penalty???  (Read 10004 times)

Offline Swampoak

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How to take money out of 401K without penalty???
« on: September 15, 2012, 10:10:26 PM »
I have a couple 401K's and would like to take the money out of one of them but do not want to take the big hit on the penalty. Wondering if anyone know of a good way to get around paying this? Could I transfer it into something else that I could take it out without or much less of a penalty???? I'm looking to take this and purchase some silver. Thanks for any help in advance.

nelson96

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Re: How to take money out of 401K without penalty???
« Reply #1 on: September 15, 2012, 11:37:50 PM »
You might talk to the firm that facilitates your company's 401K, but I've borrowed against my own a couple of times.  It worked well for my home improvement costs.  You have to pay it back (like a loan) but the interest you pay is low and the best part is that the interest is paid to yourself.

I don't know if buying silver is a qualifing reason they allow for a loan like this, but nothing says they have to know the truth.

Offline markl32

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Re: How to take money out of 401K without penalty???
« Reply #2 on: September 16, 2012, 12:18:02 AM »

Roll the 401k into a IRA account and pickup some ETF (Exchange Traded Fund) Silver (SIVR I think is the one that holds actual metal). 

Otherwise you are going to end up with 60% of you current value after taxes and penalties. 

Offline Oil Lady

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Re: How to take money out of 401K without penalty???
« Reply #3 on: September 16, 2012, 07:01:54 AM »
Two things are certain: death and taxes.

There is no way around that penalty. None whatsoever. Rolling the assets from one account into another doesn't change or get rid of the great big flashing neon sign hanging over that money which reads "TAX ME!!" That flashng neon sign is a scarlet letter which will always follow that money around from one account to the next until the day comes when you actually take hold of the money -- and the second you take hold of it, the IRS steps forward with their hand out.

Offline Mastoo

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Re: How to take money out of 401K without penalty???
« Reply #4 on: September 16, 2012, 09:07:38 AM »
I'm not sure if it is still applicable, and it has many drawbacks, and you'll need a tax-guy, but google on:

ira exception 72(t)

as a possible way to avoid the 10% penalty (you still pay income taxes).  Disclaimer - I know nothing and can be wrong about anything.

Online Morning Sunshine

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Re: How to take money out of 401K without penalty???
« Reply #5 on: September 16, 2012, 09:38:37 AM »
when we cashed out ours (all 8k of it) we just took cash.  what we discovered later was that you can ONCE IN A LIFETIME move it to an HSA (health savings account) without penalty.  wish we had done that :P

Offline Erik the Red

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Re: How to take money out of 401K without penalty???
« Reply #6 on: September 16, 2012, 02:02:51 PM »
I recently heard of the following and wonder does anyone know anything about this:

1. Move 401K to a self directed IRA
2. Apply new IRA money to real estate investment.
3. Enjoy your BOL that the IRA bought (or helped to buy) without paying the penalty, though you still paid the taxes if I am not mistaken.

Sound plausible to anyone in the know?

endurance

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Re: How to take money out of 401K without penalty???
« Reply #7 on: September 16, 2012, 02:51:01 PM »
I recently heard of the following and wonder does anyone know anything about this:

1. Move 401K to a self directed IRA
2. Apply new IRA money to real estate investment.
3. Enjoy your BOL that the IRA bought (or helped to buy) without paying the penalty, though you still paid the taxes if I am not mistaken.

Sound plausible to anyone in the know?
From what I've heard, it can be done, but it's pretty complicated and comes with a lot of rules.  You have to create a real estate trust which takes all return on your investment and holds it into the IRA.  What the IRS wants is for you to buy a home 100% free and clear with IRA money and rent it out and have that cash go into the trust, which pays the taxes and maintenance.  Anything different than that and you need a very good accountant to help protect you.

That said, buying a nice piece of raw land, leasing it to a friend for a few hundred dollars a year so they can do some farming or establish an orchard might be possible.  But you'd sure want a tax attorney that would be willing to defend you if it comes to that.

Offline Hootie

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Re: How to take money out of 401K without penalty???
« Reply #8 on: September 16, 2012, 03:09:36 PM »
Roll the 401k into a IRA account and pickup some ETF (Exchange Traded Fund) Silver (SIVR I think is the one that holds actual metal). 

Otherwise you are going to end up with 60% of you current value after taxes and penalties.

Does that only work for previous employers 401K?

nelson96

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Re: How to take money out of 401K without penalty???
« Reply #9 on: September 16, 2012, 03:13:23 PM »
Isn't Swampoak just trying to buy some silver?  I'm guessing the kind you can have and hold?

Offline Swampoak

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Re: How to take money out of 401K without penalty???
« Reply #10 on: September 19, 2012, 09:57:46 PM »
I'm not set on buying silver but I would like to take out the money to use in some form or better investment or prepping stuff, before "the big crash" or whatever. I do see a lot of good information from all the responses. Thank you all for the info and I will look into the IRA's, ETF's and possibly the HSA route.

Offline Roundabouts

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Re: How to take money out of 401K without penalty???
« Reply #11 on: September 28, 2012, 05:48:20 AM »
When we took our  401k we found that we could only take the EMPLOYERS CONTRIBUTION part of it we were not allowed to take the money WE had put in.  Don't know if that is a company thing or what.  The BIG tax hit everyone seems so afraid of will depend on what tax bracket you are in or how close to the next level you are at and how much you take out.  A good CPA could help with that.  Like Oil Lady says it makes no different when or how you get the money when it hits your hands you pay.  The idea as I understand it is that when you retire with some "luck" (go figure) you will be in a lower tax bracket because by that time you "hopefully"  will be making less money.   :crazy:  That way your tax responsibility will be less.  Also when you take it out you will be taking bits at a time not one big chunk (which you may be able to do now.  Just take a smaller portion?) .  So that would mean lower income lower taxes.   Your tax liability also depends on if you contributed pre or post tax money.

As far as the penalty of 10% it seemed that we had to pay that no matter what.  However the IRS keeps sending it back to us.  After the 3rd time of us trying to give it to them we are keeping it.  Set it aside in case they decide they want it after all.  So lets hope the 3 yrs passes before they say they want it back ;)

With a RothIRA you can take out any and all contributions YOU have put in without penalty or taxes,  (you have already paid your taxes on that money). That is after the account has been open for a period of time.  This is how it has worked for us in our experience it may not be exactly the same for you.  Before you take any money out I would talk to a tax person and your HR? dept.  Run the numbers completely.  In our case the 10% loss will be made up within 14 months and then after that IF the market still is crap we will be ahead.  But we paid off a home lone so that gave us a huge peace of mind and some extra cash. 

We have also stopped contributing to the 401k the money that we would have been putting there we are putting into what we feel for us will be a bigger return or better quality of life.

Just a word of caution or something to think about before borrowing from a 401k.  If you contribute to your 401 after taxes you paid taxes on that money.  Then as you pay back the loan you may be paying it back with after tax money.  Then when you draw on your 401k you possibly could pay some taxes again.  So basically if you are not careful you could end up paying taxes on the same money 2-3 times.  For some it works out fine.  You just have to know how it will work for you.

Another thing I would like to throw out there is are you SURE the economy will crash?  What if it doesn't?  By taking this money now will it hurt or help you if times get bad or even if they don't.   I don't think it's wise to only see one side of the coin.  We need to prepare for the good too.  Could there be another way to get some silver?   Just throwen it out there.   I mean maybe the feds could fix the whole problem and we will all come out smelling roses with lower taxes  :rofl:  magic unicorn?

Offline Darryl the Barrel

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Re: How to take money out of 401K without penalty???
« Reply #12 on: October 05, 2012, 10:48:33 AM »
You can roll the money into an IRA and then take annual payments until age 59 1/2. By doing so you will avoid the 10% penalty.
If you are 50 then this is not so bad, if you are in your twenties this might be a bit too long.

This site has a description of it: http://www.retireearlyhomepage.com/wdraw59.html

Offline cdhm22

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Re: How to take money out of 401K without penalty???
« Reply #13 on: October 05, 2012, 12:06:19 PM »
The way my plan worked I couldn't touch anything unless I left the company. I get an employee match on the 401k and decided to set up Roth IRA after that. The investment firm tied the two together because the contributions were coming directly from my paycheck and now I can't touch any of it unless I quit. Even though my company didn't have anything to do with the investment to my Roth IRA. In argued until I was blue in the face and talked to a couple of managers at the investment firm to no avail.

Offline FrugalFannie

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Re: How to take money out of 401K without penalty???
« Reply #14 on: October 05, 2012, 12:26:32 PM »
The gov dictating when YOU can access YOUR money by setting the rules employers and employees have to follow. Such a beautiful thing  ::)

Offline fred.greek

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Re: How to take money out of 401K without penalty???
« Reply #15 on: October 06, 2012, 01:20:00 PM »
The core IRS publication for an IRA is 590:
http://www.irs.gov/pub/irs-pdf/p590.pdf

For a 401(k) it is 560:
http://www.irs.gov/pub/irs-pdf/p560.pdf

The typical IRA/401(k) custodian/trustee limits investment choices because they want you to buy “their” investment.

The IRA restrictions on what your account can do is in the “Prohibited Transactions”, “Disqualfied Persons”, and parts of the publications. 

Your account cannot own:
Artworks
Rugs
Antiques
Metals
Gems
Stamps
Coins
Alcoholic beverages
Certain other tangible personal property.

These accounts CAN own raw land, rental homes, etc., and it’s not that complicated, it just take a custodian willing to do it.  If such an account owns land though, the taxes and insurance for the real property have to be paid out of account funds, so if you are buying non-rental land, be sure you have enough account deposits to cover the ongoing costs.  For details run a search for “real estate IRA”, or something like that.  Way back when we did our first IRA owned rental home, there were very few custodians who would handle it.  There are a lot more today.  If you account owns the land, then no one who fits the definition of a “Disqualified Person” can use the land, or the IRS can deem the account distributed and taxable. 

Note, for thought, your brother, sister, nephew, cousin, etc. are NOT in the definition of disqualified persons.  Pre-crash, they could go enjoy the bugout location owned by your IRA, just as you could pre-crash enjoy the land next door owned by THEIR IRA.

If you want to actually pull the money out of an account, yes, it is going to be added to your taxable income for the year you take it out.  If you are under 59 ½, then the additional 10% penalty/tax may apply, unless you can show the withdrawal fits one of the exceptions.

You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
The distributions are not more than the cost of your medical insurance.
You are disabled.
You are the beneficiary of a deceased IRA owner.
You are receiving distributions in the form of an annuity.
The distributions are not more than your qualified higher education expenses.
You use the distributions to buy, build, or rebuild a first home.
The distribution is due to an IRS levy of the qualified plan.
The distribution is a qualified reservist distribution.

Check with you tax guru to see if your facts fit an exception.  (The above are essentially the rule 72(t) mentioned by others)

To us, the allowed withdrawal for education made deposits to an IRA better than a 529 college plan…

A quark in the law for these accounts, although it is the IRS who writes the rules, and stomps on you if your violate them, if you want to ask for an exception to the rules, your request goes to the Department of Labor… For an intro to such see:
http://www.dol.gov/ebsa/publications/exemption_procedures.html#.UHCCuXly2AY




Offline Erik the Red

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Re: How to take money out of 401K without penalty???
« Reply #16 on: October 06, 2012, 01:56:32 PM »

If you want to actually pull the money out of an account, yes, it is going to be added to your taxable income for the year you take it out.  If you are under 59 ½, then the additional 10% penalty/tax may apply, unless you can show the withdrawal fits one of the exceptions.

....

You use the distributions to buy, build, or rebuild a first home.




Hi Fred. Where did you find information about an exemption for buying or building a first home?

erik

-- nm, a little more googling found me the answer -- this only applies to IRAs -- 401k still pay penalties
« Last Edit: October 06, 2012, 02:11:07 PM by Erik the Red »

Offline BriGy86

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Re: How to take money out of 401K without penalty???
« Reply #17 on: July 29, 2015, 01:54:00 PM »
I rolled my 401k from previous employers into a Roth IRA.  I payed taxes on it but no penalty since it's still in a retirement vehicle.

The way I understand it; Even though my money is now in a Roth IRA I still take a penalty if I pull it out before age 65 and a half.  But since I've already payed the taxes during the roll over the penalty is all I have to worry about if I need to take it out early.