New job, rollover vs cashing out?

[HMFIC]

roll it over. Roth if you can.

 

[Shoot Summ]

Let’s do some math on cashing out. I believe this is the way the IRS would handle your early withdrawal.

$14,442 – Cash value of 401K
$ 3,822 – Loan value that must be repaid with after tax and early withdrawal penalty dollars
$18,264 – Total taxable and penalty value of 401K


$14,442 – Cash value
($1,826) -10% early withdrawal tax penalty on $18,264

$12,616
($7,306) -40% (minimum) of the $18,264 tax withholding for federal and state taxes. Could be closer to 50%
$5,310
($3,822) pay back the loan with after tax dollars taken above.
$1,488



Net cash you will end with should be around $1,488. However, when you file your 2011 taxes, you could recoup some of the overpayment of taxes if your marginal tax rate is lower.

I would definitely get a written estimate from your HR/401k provider before you make the decision to cash out.

I'm not following your math on paying the loan back.

If he withdraws the loan is considered a withdrawal as well, nothing to "pay back". It is treated as part of the withdrawal and is taxed as such as you have reflected.

Everything else looks accurate, alot of folks don't realize the tax burden when they withdraw and end up owing(alot) at the end of the year.

 

[DPI]

I'm not following your math on paying the loan back.

If he withdraws the loan is considered a withdrawal as well, nothing to "pay back". It is treated as part of the withdrawal and is taxed as such as you have reflected.

Everything else looks accurate, alot of folks don't realize the tax burden when they withdraw and end up owing(alot) at the end of the year.

My ASSumption was he had to pay back the loan. I think you are right. He will only have to pay the penalty and taxes on the $3,822 since he has that as an unpaid balance. He would only have to pay it back for the roll-over or pay the taxes and penalty on that amount only.

So he would net the $5,310 + $3,822 he had borrowed.