{ "media_type": "text", "post_content": "Can someone explain to me what my cost would be if I took a 50k cares act withdrawal from my 401k? It says there is no 10% early withdrawal penalty but the income tax will have to be paid. If I withdraw 50k how much will I actually take home after applicable fees and NYC taxes? I'm trying to figure out if it is worth dipping into my retirement. Do anyone have any experience with this? Thank you.", "post_id": "5f90fe8f7518b4002420f06c", "reply_count": 16, "vote_count": 1, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Can someone explain to me what my cost would be if I took a 50k cares act withdrawal from my 401k? It says there is no 10% early withdrawal penalty but the income tax will have to be paid. If I withdraw 50k how much will I actually take home after applicable fees and NYC taxes? I'm trying to figure out if it is worth dipping into my retirement. Do anyone have any experience with this? Thank you.

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It’s never worth dipping into your retirement. You’ll pay taxes and miss out on future returns. Please don’t do this to yourself.

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That’s a lot to take out. You’ll be taxed at your income rate including that $50K.

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Always remember these 4 words: marginal income tax rate. Those $50k will be taxed at your current highest rate, possibly even taking you over the next slab.

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So I did a calculation for you because I’m bored right now. Obviously the big thing you miss out on if you withdraw early is not actually the taxes and fees you’d pay now. The big thing you miss out on is loss of potential gains over time when you retire. I have a spreadsheet for my SO and I where I track our estimated retirement balances for the future. It tracks our current balances, estimated contributions and growth rate over time to reach an estimated balance at retirement age (I’ve estimated 2050). If all I do is decrease this year’s contribution by $50,000 (all other assumptions, growth rates and contributions are the same for all other years), and then assume I never pay myself back, our estimated retirement balance in 2050 is $480,000 less than if I never touched the money. If I take that $50,000 out, and then assume I pay myself back over the next three years in $16,500 installments, PLUS whatever I had originally assumed we would contribute in those years, then our amount at retirement is $214,000 less. For me, unless I was on hard times and couldn’t make mortgage payments right now, I would not want to deprive myself of those future earnings. My assumed growth rate is fairly conservative too, so it’s likely that the real amounts lost would be much higher as market gains would compound even more over time.

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Ok. No tax penalty, but with the cares act you can ask to have the money taxed over three years instead of one. So you’d add ~16.5k to your current taxable income to determine your new base for the next three years. And there are no applicable fees or tax withholding so you would net the full $50k at the time of withdrawal. And if you don’t use it all, you have the option to pay it back (in full or in part) in the next three years (and get any taxes you paid in back). Just make sure it’s coded for COVID / Cares Act. And I am speaking from experience on this. 😉

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Given I don’t know your detailed tax situation. I just assumed no additional write-offs and a single taxpayer with no dependents. Federal Tax liability if you take $50k and claim it over: 1 year: $36888 3 years: $28064 Your normal tax liability is $23984. So if you normally get a $5k refund you’d only get $1k if you spread the taxation out over 3 years. You would subtract any federal withholding you pay in. But that’s the worst case scenario (no tax credits etc factored in) You can run a more accurate scenario on the IRS website with your actual details. https://apps.irs.gov/app/tax-withholding-estimator/about-you And there are state and city taxes to consider.

thought the deadline passed?

Nope. Available til Dec.

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You can also take a loan against your 401k if you need to

Ask an accountant. I know people who took it out for their mortgage, and repaid it pack. Not sure how they managed but they said it was a good strategy

You would be taxed just as your normal paychecks are, possibly even harsher because this 50k could bump you up to another tax bracket which would be part of this money would be taxed even more

What if I took it out of my Roth? Does the cares act allow for me to take it out tax and penalty free?

Can i take out the growth under the cares act?

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