Originally posted by Madhav Lakkapragada:
You put 6% (say 1000/- for easy Math) into a 401K account. Company matches 50% upto 6%, so in this case 3%. In one year, the total is 1500/-, right?
You withdraw everything. 10% penality is 150/-. Net profit is 350/-. You pay tax on 1500/-.
- m
i am not a 401k expert, but i believe here is how it works:
you deduct $1,000 from your paycheck prior to tax, your company match $500 in the form of company stock. your contribution is in mutual fund or whatever your choice is.
then all these are fluctuate with stock market. one day you want to take it out, you treat them as income for that year, so you need to pay tax based on your bracket, if you are under 59.5, you pay additional 10% on top of tax.
so after a year, you want to take it out, assume your company stock and all your mutual fund are the same, then you still have $1,500. how much tax you need to pay, depends on what is your income for that year. but one thing is for sure that you need to pay $150 ($1,500 x 10%) for earlier withdraw penalty.