401k
My company Matches 3% for my 6% contribution. Is it worth to enroll in 401k if I am guaranteed that I will withdraw money after 3 years ? I will need to pay 10% penalty in addition to the tax. Let’s say I have 30k(including employer contribution) at the end of 3 years in my 401k. If I withdraw I will be paying 30% tax + 10% penalty so I get 18k ?
The penalty will be more than your company’s match. Doesn’t make any sense.
You do funny math. Assuming OP puts in just enough to maximize the return (6%) then 33% of the money is company match. Way more than the 10% penalty. Of the 30k, 20k is OP and 10k is company. Without doing 401k then OP has 14k (still paying 30% tax). With 401k OP has 18k. 18 is more than 14. Just don't put in more than needed to get the match. That increases your penalty without increasing your return.
You wouldn't have explained it so well if uhhyhhgh didn't make the stupid comment. So I guess it worked
Why do you want to withdraw your money 3 yrs later? Just keep it till you turn into 59.5 then no tax for withdrawal.
The only way to win it to withdraw it when your tax rate is very low. So if you take a few years off, withdraw some then to get the lower tax rate. Mother wise, just wait until you are old.
If you are leaving out of country in 3 years then definitely. Your current tax of 30% is way more than the 10% penalty you pay. Matching upto employer contribution always makes sense
If you withdraw from your 401k, you do have to pay the nominal tax rate of ~30% on top of the 10% penalty
Marginal tax rate on top of 10%. So for many of us, you could loss up to 60%
It's a simple calculation. If the vested portion of employer contribution at the end of three years is greater than the 10% penalty, then you don't contribute to 401k. If you're quitting in the first couple of months of the calendar year and cash out your 401k, the tax on that is going to be lower than cashing out at the end of the year provided you don't work for the rest of the year after you quit.
Always Max our your contribution to assure the company match. If you wish to save more, max out your Roth IRA first, then Max out the traditional IRA, and if you still have more money to save go back and Max out the 401k. The penalty of 10% applies only if you withdraw money before you’re 59.5 years old, which you really shouldn’t, unless there’s force majeure
You pay the tax one way or another, so you only need to factor penalty and employer matching.