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Posted by Herb Smith on December 13, 2006, 10:57 pm
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blwolcha@hotmail.com wrote:
> joetaxpayer wrote:
>> blwolcha@hotmail.com wrote:
>>> Hi, I find myself sometimes thinking that there's a way to
>>> realize a short-term gain (over one's given compensation)
>>> from a 401k contribution, even including the early withdraw
>>> penalty, and I'm wondering if my thinking is correct. The
>>> question comes down to, does the "free money" obtained by an
>>> employer match ever more than offset the penalty assessed
>>> for an early withdrawal from a 401k plan?
>> The tax is a wash, a match to negate the 10% penalty is
>> enough. An 11% match will negate a 10% penalty, and is the
>> breakeven. The real question is, what employer would allow
>> annual withdrawals from the 401(k)? They all have hardship
>> provisions that disallow this strategy.
> Thanks, but I really don't understand. Can you comment in
> terms of the example I give in my original post? There I
> describe a situation where a 5% match seems to well make up
> for the 10% penalty and the tax. Where have I gone wrong in
> the details?
Your whole scenario is based on the false premise that you
are allowed to make an earlywithdrawal from your 401K plan
when you wish. Barring certain "hardship" situations, you
are not allowed to make withdrawals while still employed by
your plan's sponsor.
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