How to Calculate a Cash Out of a 401(k)

401k retirement plans are an employer-sponsored benefit that allow you to save money for retirement. Given the time to grow, 401k plans can provide you with financial security in your retirement years. However, sometimes circumstances require you to access your 401k funds to take care of emergencies such as medical treatment or to save your home from foreclosure. If you need to cash out your 401k, several factors can influence how much cash you will actually get.

Instructions

1. Obtain your current 401k balance by contacting your 401k Plan Administrator or by accessing your account through your plan's website.
2. Add the balance of any 401k loans that you may currently have out. How the loan is treated during a cash-out varies by plan. Some plans instantly include the loan proceeds as part of your 401k balance for purposes of calculating taxes and penalties. If you lose or quit your job, the loan may be considered due in full immediately. If you have not repaid the loan in 60 days, it will then be considered taxable income, subject to the same taxes and penalties as the remainder of your 401k balance.
3.   Subtract 10% of the full balance (including loan distributions) of your 401k account. Early withdrawals are instantly hit with a 10% penalty by the IRS unless you can qualify for a hardship or other penalty-free type of early withdrawal.
4. Calculate the amount of federal tax that will be withheld on the full balance of your 401k account. The tax will be based upon your IRS Income Tax bracket, which is based upon your annual income.
5. Calculate the amount of state tax to be withheld from your full 401k account balance. You can find your state's income tax rate by contacting the state department of taxation where you reside.
6. Subtract any administrative fees from the remaining balance. You can find out exactly what fees apply by contacting your plan administrator or by reading your 401k Summary of Benefits statement.
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Tips

•  If at all possible consider other alternatives, such as home equity or 401k loans, to avoid paying massive penalties on your 401k distribution.

• If you have been the victim of a natural disaster and a Federal Disaster Declaration has been issued for your area, you may qualify for a hardship withdrawal. IRS Publication 575 contains current information about this 401k penalty exemption. 

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