How much taxes should I factor into an early 401K withdrawal?

I'm young and have decades before retiring. I worked for an employer that I have since left for a much better employer. I want to withdraw the balance of my 401K. I have weighed the options and considered it carefully. I'm growing in my position at my new job and it pays twice what the old job did. Plus, the company match for the 401K is way better than my old employer. I'm aware that I could roll it over into something like an IRA, and I know that I will be taxed heavily for taking it out. I'm fine with that.

The money would be very beneficial to me at this point in my life and I want to take it out. The option is given to me to go ahead and tell them how much taxes to withhold for Federal and State before cashing out.

I worked 8 months at my old job. If I add that income to my current income at the new job through the end of this year, it comes to about 24,000 for the year. There's about 6,400 in my 401K.

It appears that I'm in a 15 percent tax bracket given the above amounts. To my understanding, there's a 10 percent penalty for withdrawing early. I'm in the state of Georgia. From what I can tell, the state tax amount seems to be 6 percent.

Will that 31 percent be enough? I basically want to withhold taxes from everything ahead of time and not have to worry about owing anything at tax time.

Added (1). Well, Kim… I don't buy brand new vehicles. Only used and outright. I also don't buy designer clothing, $600 Iphones or any of the stuff that you probably buy. I'm much more frugal than that. I need the money because I started into a new career field.

But here's one of your questions where you just bought a Ford F-150.

So I'll say… You probably didn't need that. Couldn't you have walked and put it into your 401K?

An acquaintance of mine decided he really, really wanted a brand new truck, so he emptied his 401k of it's $30,000 to do just that. A fool and his money are soon parted… Need I say more, dear?

Okay, you are bound and determined to do this. You claim you have plenty of time to replace the money (sure you do, let us know when you actually do this).

Your estimate for federal is correct. But remember, this is an estimate. You still have to list everything on your tax form when you file.

Don't just withdraw the money. You have other options.

1. Leave it where it is. Many 401(k) plans allow you to keep the plan when you leave if you have a minimum amount in the account, typically around $5,000 or so.

2. Roll it over into a traditional IRA. Do a trustee to trustee rollover and there will be no tax considerations at all.

3. Roll it over into your new employer's 401(k) plan. Many plans allow rollovers from external sources such as old 401(k) plans. As in #2 above, this has no tax consequences.

If you withdraw the funds you will lose $1,984 to taxes. If you leave it in a tax deferred plan for 40 years and average 8% over those 40 years, it could be worth as much as $150,000 when you retire. While $150k won't be worth what it is today in 40 years, if inflation averages 2% over those 40 years it would equate to nearly $70,000 in today's dollars.

Given that your salary has doubled with the new job, you don't need that $4,416 after tax money right now, so do the smart thing and leave it in a tax sheltered plan.

Sounds like you thought this through.

Federal early withdraw penalty is 10%. Looks like you've correctly calculated 15% for ordinary federal income tax. And I don't know much about state taxes, but 6% sounds like the right range.

The 401k will probably withhold 20% for federal taxes automatically. That will leave you short since you'll owe $25%. You might be able to specify extra withholding to cover the 5% or you could just claim fewer allowances on your W-4 and pay a little higher taxes on each paycheck. You could also just set aside a chunk of the money in a separate account and plan on owing the difference at tax time.

You'll have to check your state rules or contact the plan administrator to find out if they withhold taxes for state and how much.

Rolling it into an IRA is good advice in general, but if you withdraw the money and use it wisely I won't call you crazy.

Roll the 401(K) into an IRA if you have a good job and don't need the money
at least you will not be paying any taxes on the distribution at this time which you probably don't need any more of(taxes)

If I offered to loan you your 401k balance, but asked for 31% interest - would you do it?

This IS a mistake - - no matter how you rationalize it. There isn't a financial planner in the world that would advise you to do this - - - that should give you a clue that you really HAVEN'T "thought this through" and you do not have a comprehensive understanding of how this will work against you.

Tell them to take 25% for federal, 6% for state.