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Do you have to pay taxes on a 401k if you take the money out to reinvest in a home?
Wiki User
∙ 15y ago
Because the money in your 401(k) has never been subject to income tax, all withdrawals for any reason will be taxed as ordinary income. Furthermore, if you take a premature (generally, under age 59 1/2) distribution from your 401(k) to purchase a home, the distribution will additionally be subject to a 10% penalty tax. You make take an early distribution of up to $10,000 from an IRA to pay qualified acquisition costs to purchase, build, or rebuild a first home without incurring the 10% penalty tax. The distribution will still be subject to income tax. http://www.irs.gov/publications/p590/ch01.html#d0e8323 If you purchased a home for your principal residence after April 8, 2008 and before July 1, 2009, you may be eligible for a First Time Home Buyer Tax Credit of up to $7,500 for your 2008 tax return. To be eligible for the credit, you must not have owned a home as a principal residence in the previous 3 years. http://www.efile.com/tax-deduction/income-deduction/home-deductions.asp
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∙ 15y ago
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In Indiana if your home goes into foreclosure can they take your 401K retirement savings for payment of balance?
Unlikely. With few exceptions, 401K/IRAs are exempt from seizure.
Does a 401k Withdrawal Make Sense to Help Get Personal Finances in Order?
The act of getting personal finances in order is an essential part of living a healthy and balanced life. This is because how a person spends money will be directly related to what their priorities are and reflect their emotional state. Part of the solution to achieving a successful home budget is learning what tools and resources are available. To that extent, some people make use of a 401k withdrawal to jump start their financial stability.Consider a 401k Withdrawal CarefullyExercising a 401k withdrawal should be a last resort to restore balance to a budget because of the tax consequences. The funds from a 401k withdrawal are treated by the IRS as earned income in the year the withdrawal is made. This will not only subject the amount withdrawn to taxes but it will result in a person's personal income for the entire year being subject to a higher tax rate. It is common for an employer to withhold 20% of the amount withdrawn for federal taxes but bear in mind this will likely be insufficient. The IRS will also apply a 10% early withdrawal penalty unless certain conditions are met. Between the IRS early withdrawal penalty, federal, state, and local income taxes combined, the average person will surrender 35-45% of the 401k withdrawal to taxes.However, taxes aren't the only consideration a person needs to be aware of. Less money in a 401k will result in less growth for the 401k account overall and less money to live off of during retirement. The average American over age 50 has only $27,000 saved towards retirement. Therefore, gutting a 401k to solve today's financial hardship may well end up inflicting decades of hardship during retirement.If After These Important Considerations It Still Makes Sense Then Do ItIf the cash infusion of a 401k withdrawal still makes sense, then proceed forward with that option but consult with a tax accountant first. This step is crucial because the last thing anyone wants to do is owe taxes at the end of the year. The account can advise you accurately as to how much of a withdrawal must be made to get the target amount of money needed. Just remember that bailouts are not a long-term solution. Without the proper discipline taught by techniques such as those at this website, a person is likely going to be in worse shape after the 401k withdrawal. This is because the same bad financial habits will continue but a valuable asset will have been depleted.
Is it okay to use 401 k to pay for home equity loan?
If you tap your 401K to pay your loan there will be a penalty for early withdrawal (10% ?) and ordinary state and federal income taxes deducted from the amount you withdraw. Those will take a big chunk out of the amount withdrawn.
Can you take a 401K hardship withdrawal if you need to pay for a parent's home health care?
yes
Can I withdrawal of 401k funds to buy a vacation home in another country without paying taxes on the funds?
No. There would be penalties. See link.No. There would be penalties. See link.No. There would be penalties. See link.No. There would be penalties. See link.
How long do you have to reinvest before you must pay capital gains?
There was an option to reinvest proceeds from the sale of a home into a new home in order to avoid capital gains taxes. That option was repealed in 1997 and replaced by the current $250,000/$500,000 exclusion. There is no other option to avoid capital gains taxes by reinvesting. Perhaps you are thinking of the Section 1031 exchange that lets you trade one income-producing or business property for a similar property. See: http://www.irs.gov/newsroom/article/0,,id=179801,00.html
If you were told by your attorney that your 401k was protected and exempt from bankruptcy and you borrowed on it to try and save your home now you are faced with paying taxes on it. can we sue?
Precious...you saw my last answer I should think....better read it again.What he told you is correct...and your 401k is still there and safe from BK.....if he told you it was OK to borrow against it and that the borrowed money would be safe from BK just like the 401k is ...that would be wrong and you may want to take action against him.....If you thought touching the 401k (as in borrowing against it) was the same as keeping it protected and safe...it's just your fault for not understanding what your doing.
Is there a way that I can find out about 401k interest rates?
If you do need to tap into your 401k in order to purchase your home it's best to leave it in tact. Borrowing money from your 401k will typically come with an interest rate of prime plus one percent currently. Although there are other additional fees that can add up as well.
The Benefits And Drawbacks Of 401K Withdrawals?
Many families and individuals rely on 401K plans for financial security after retirement. They provide an easily manageable way to accumulate savings over the course of several decades. There are also a number of complex regulations governing 401K accounts. Several of these regulations are designed to prevent people from using the savings as a bank account. This is why 401K withdrawals are so tightly regulated. Although it is possible to receive money from the account before retirement or age requirements are met, the many penalties surrounding the withdrawal should be considered before making the decision. The large majority of 401K withdrawals are subject to regular taxation as income. In addition to regular income taxes, there is also a 10 percent penalty fee. The maximum annual contribution limit for the 401K does not change after the money is withdrawn. This means that it is not possible to re-deposit the money to restore the account to previous levels. The money that is withdrawn loses all future investment potential. All of these disadvantages make the decision to withdrawal money from a 401K difficult for most families saving for retirement. There are situations where it is better the remove money from savings and accept the penalties instead of losing a home or falling into bankruptcy. Several exceptions do exist that minimize or eliminate some of the penalties attached to a 401K withdrawal. Withdrawals are fine after a person has reached 59.5 years of age. They are also allowed if a person has retired and is older than 55. It is possible to withdraw a specific amount for necessary medical expenses. Individuals who have become legally disabled can withdrawal money without the penalty. Although the 10 percent penalty will not apply in these situations, the money is still taxed as income in most cases. Anyone facing financial difficulties with an active 401K account has several alternate options available that could make drawing on the money easier. The 401K could be converted into a Roth individual retirement account (IRA) that has less stringent withdrawal rules. A better option for long-term savings is to explore the possibility of a 401K loan instead of a simple withdrawal. Both of these methods will save money. They also could take some time and have different benefits and drawbacks.
What is gross household income?
gross household income is how much money everyone in your "household" brings home after taxes.
In Indiana if your home goes into foreclosure can they take your 401K retirement savings for payment of balance?
Unlikely. With few exceptions, 401K/IRAs are exempt from seizure.
Does a 401k Withdrawal Make Sense to Help Get Personal Finances in Order?
The act of getting personal finances in order is an essential part of living a healthy and balanced life. This is because how a person spends money will be directly related to what their priorities are and reflect their emotional state. Part of the solution to achieving a successful home budget is learning what tools and resources are available. To that extent, some people make use of a 401k withdrawal to jump start their financial stability.Consider a 401k Withdrawal CarefullyExercising a 401k withdrawal should be a last resort to restore balance to a budget because of the tax consequences. The funds from a 401k withdrawal are treated by the IRS as earned income in the year the withdrawal is made. This will not only subject the amount withdrawn to taxes but it will result in a person's personal income for the entire year being subject to a higher tax rate. It is common for an employer to withhold 20% of the amount withdrawn for federal taxes but bear in mind this will likely be insufficient. The IRS will also apply a 10% early withdrawal penalty unless certain conditions are met. Between the IRS early withdrawal penalty, federal, state, and local income taxes combined, the average person will surrender 35-45% of the 401k withdrawal to taxes.However, taxes aren't the only consideration a person needs to be aware of. Less money in a 401k will result in less growth for the 401k account overall and less money to live off of during retirement. The average American over age 50 has only $27,000 saved towards retirement. Therefore, gutting a 401k to solve today's financial hardship may well end up inflicting decades of hardship during retirement.If After These Important Considerations It Still Makes Sense Then Do ItIf the cash infusion of a 401k withdrawal still makes sense, then proceed forward with that option but consult with a tax accountant first. This step is crucial because the last thing anyone wants to do is owe taxes at the end of the year. The account can advise you accurately as to how much of a withdrawal must be made to get the target amount of money needed. Just remember that bailouts are not a long-term solution. Without the proper discipline taught by techniques such as those at this website, a person is likely going to be in worse shape after the 401k withdrawal. This is because the same bad financial habits will continue but a valuable asset will have been depleted.
Can a lien be put on my house for back taxes on a mobile home that is in my name my house taxes are current?
Yes, your real property can have a lien put on it. The government will do everything they can to get their tax money.
Do foreign baseball players pay taxes?
In the US, Federal taxes are commonly withheld on all baseball players' salaries and bonuses. In some of their home countries, this amount of US taxes can be a deduction for home country income earned abroad. The player's home country tax laws govern taxes that may be owed there. Some nations do not tax citizens in any sport where they earn money.
Net Income?
Is the take-home pay; it is the amount of money received after taxes and deductions have been taken out of gross pay.
Can you fund your living trust with your homestead and 401K?
Your home can be transferred to a trust. Your 401K can only be transferred to another qualified plan through a trustee to trustee transfer under federal tax laws. You cannot take control of your own 401K.
How much do you pay in taxes earning 240000 per year?
That depends on the amount of children you have, if you own your own home, if you donate money.
