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Old 04-06-2013, 04:32 PM   #184
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Originally Posted by mhgaffney View Post
I just heard from a friend who cashed in his 401 and had to pay a new 40% tax -- which is much higher than his usual payroll tax.

The actual penalty for early withdrawl is 10% on top of your marginal tax rate. In other words, depending on your tax bracket the tax you pay for early withdrawl is between 20% (you you have no very little income) and 49.6% (for the highest incomes).

Unless you just started your 401k or the market has done very badly, you're still likely come out ahead from having not invested pre-tax income.

The penalty is not 40%.

Last edited by Fedaykin; 04-06-2013 at 04:34 PM..
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