I recently liquidated a small portion of my 401k to help with home-buying costs. The tax penalties were steep, but are required to be deducted up-front. So, I liquidated X, and they sent me a check for roughly 0.7X.
I think you have a good point about the merits of getting a loan and liquidating only if you HAD to; I thought the author's points were interesting though about paying a tax penalty now rather than an equity stake to an investor.
they are required to deduct 20% plus a 10% penalty. It is unlikely, if you have any other income at all, that you will not have to pay more come tax day.
The 10% penalty does not count toward your tax liability, so really they only witheld 20%.
I know if I did this right now, it would be closer to 40% for me. Plus the 10% penalty, so I would only get to use 50% of what I withdrew and stash 20% for tax day.
I think you have a good point about the merits of getting a loan and liquidating only if you HAD to; I thought the author's points were interesting though about paying a tax penalty now rather than an equity stake to an investor.