How much is the early 401k withdrawl tax? Is it the same as our income tax, federal and state combined? #401k
You can take a loan from 401k. The interest you pay goes back to your account as you are borrowing from yourself.
How much is the interest rate usually on such loans?
WSJ prime rate + 2%. currently WSJ prime rate is 5.5%.
Look up Roth conversion ladder to avoid the penalty in exchange for 5 years of access to the money
If you take a loan on 401k and get fired by the company, you will have to pay the outstanding loan in full. Just keep this in mind and have backup option for such cases. Else, loan isn’t expensive as interest you pay goes back to your account.. say you took 10k loan and paid 700 in interest for the year (assuming 7% interest). This 700 would go back to your 401k account and you pay taxes on this 700. If you are paying 30% income tax, you will end up paying 210 in taxes for this $700 income. Likewise 280 at 40% tax. So your net interest for taking loan against 401k would be anywhere from 2% to 2.8% depending on which tax bracket you fall in.. remember that the loan can be taken against employee contribution only though.
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Same as income plus 10% penalty for federal. State might also apply penalty, in CA it’s 2.5%
Is it federal + state?
Updated answer