401k withdrawal penalty

[cyorgy]

My husbands company was recently sold.  He had a $20,000 loan outstanding.  His options are to pay it back or take it as a withdrawal.  We are in the 25% tax bracket, will we owe 35% with the 10% penalty so $7000 come tax time next year?

[MinhT · Accepted solution]

Yes, you are correct. If the distribution (withdrawal) occurs before age 59.5, there is an early withdrawal penalty of 10% of the amount of the distribution in addition to the income tax at your tax bracket.

There are exceptions for the early withdrawal penalty:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...