Hi, Has anyone experienced this before? Is it worth paying the penalty? https://www.greatfinanciallite...

@Duane Brown Even better now there is no 10% penalty and you could depreciate taxes on real estate property to offset 401k taxes due...

Hard to turn down a property that is cash flowing that high. I would think of it in terms of how long it would take to recover the taxes. If the 10% penalty comes out to $3,000 it would only take 3 months to make the money back. Starting month 4 you would come out ahead. Especially if this deal were to pass without the funds from the early withdrawal. It seems like a no brainer to just pay the tax and penalty.

Well said guys... But what if the property is CASHFLOWING $1000–1500 a month after expenses ??? Also in a appreciating town ? Also buying the property for 40k under the appraised value? Is the penalty worth it now ? @Mike Scheeler @Adam Rasmussen

@Adam Rasmussen I agree ... the house will be used as college rental... it’s in prime location literally walking distance to one The College of New Jersey... right now the houses in are rent for 2500-3000 a month... I was against the withdrawal and the penalties but to obtain a asset in this area with this CASHFLOW that will also appreciate 2-3% each year ... Here are some numbers 185k PP = $1400 mortgage ARV=220 Rents for 2500-3000 a month Saving 15%-20% for M&R, Cap Ex, Vacancy It will CASHFLOW very well... I think the penalties are worth it... Also I look at my 401K as a ok vehicle but my other investments (my portfolio) yield much higher returns ... also if all goes well I’m 33 I will retire in 10-12 years ... Meaning I won t be using my 401K like many at the age of 65+... I can post the numbers if u care to take a look from the deal analysis ... thanks for your feedback Adam. Duane

I was about to ask a similar question (and still will due to the current economy), but appreciate the discussion on this thread about the pros and cons and level of cash flow required to make the early withdrawal penalty worth it.. Thanks for the insights and hope it worked out great 4 years later! @Mike Scheeler @Adam Rasmussen@Chris Levarek @Duane Brown

Not worth it in my opinion. You would need to have some really good returns on that money to make up for the 10% penalty. And keep in mind this is in addition to your normal tax liability. So it really is going to cost you as low as 20% or as high as 47% depending on your tax bracket.

And to add on to what Adam said and really drive home the point of how it isn't worth it... the normal tax liability is based on the amount withdrawn prior to the 10% penalty being assessed. For example you take out $50k, after penalty is $45k and the tax bill will be for (assuming you are in a 24% bracket for example sake) 24% of $50k. So you would net $33k in that example and that also doesn't include state tax. Also taking out a large amount can bump you into a higher bracket which only makes the example worse. so just to summarize, it is probably better not to pay the penalty for early withdrawal.

@Chris Levarek so true .. I’m under contract and using the fund from 401k ... ready for my tax and penalties lol...

401k penalty for Early withdrawal?401k penalty for Early withdrawal?

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401k penalty for Early withdrawal?

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