Just wanted to add that if you're planning to do more independent contractor work this year, consider making quarterly estimated tax payments to avoid a surprise tax bill next year. My wife and I learned this the hard way!

Great question about quarterly payments! The general rule is to pay 25% of your expected annual tax liability each quarter (due dates are April 15, June 15, September 15, and January 15). For freelancers just starting out, I recommend calculating based on your projected annual income. Take your expected yearly profit, multiply by your tax rate (including self-employment tax), and divide by 4. If you're unsure, it's better to slightly overpay than underpay - you'll get a refund if you overpay. A safe harbor rule: if you pay 100% of last year's total tax liability through withholding and estimated payments (110% if your prior year AGI was over $150k), you won't owe penalties even if you end up owing more tax. Since you're new to freelancing, this might be the safest approach for your first year while you figure out your income patterns. The IRS has Form 1040ES with worksheets that help calculate the right amount. Many people also set aside 25-30% of each freelance payment in a separate account to cover taxes.

I really appreciate how thorough and supportive this discussion has been! As the original poster dealing with this layoff situation, I wanted to thank everyone who shared their experiences and insights. After reading through all the advice, I'm planning to take the following approach: 1. Call my 401k plan administrator Monday to understand my specific options and timing for direct rollover vs. distributions 2. Contact my local SCORE chapter to get expert guidance on the financial implications 3. Research Illinois dislocated worker programs and TAA eligibility - these could be game-changers for funding my retraining without touching retirement funds 4. Look into community college partnerships that might offer additional state funding for displaced workers The consensus seems clear that a direct rollover to an IRA is the safest way to preserve my retirement savings while maintaining flexibility for future education expenses. The potential 35% tax hit on a lump sum withdrawal really puts things in perspective - we're talking about losing over $3,000 on my $8,800 balance versus keeping that money growing for my future. I'm also going to follow the advice about timing and see if it makes sense to delay any distributions until 2025 when I might be in a lower tax bracket due to unemployment. This community has been incredibly helpful during a really stressful time. Sometimes the best financial decisions come from taking the time to research all your options rather than reacting out of panic. Thank you all for helping me see the bigger picture and avoid what could have been a very costly mistake!

Reading through this entire discussion has been incredibly educational! I'm not in the same situation as the original poster, but I wanted to share something that might help others who find themselves facing similar 401k decisions during layoffs. My sister went through almost the exact same scenario last year - telecom layoff, considering career change, roughly similar 401k balance. She initially panicked and was going to take the lump sum just to have cash on hand, but thankfully did her research first (much like what's happened in this thread). The direct rollover to IRA ended up being perfect for her situation. She was able to keep the money growing tax-free, and when she did start her nursing program six months later, she could take distributions for qualified education expenses without the 10% penalty. The flexibility of having it in an IRA versus the original 401k made all the difference. One thing she discovered that wasn't mentioned here yet - some IRA providers offer educational resources and planning tools specifically for people using retirement funds for career transitions. She found this really helpful for budgeting exactly how much she'd need to withdraw and when, so she could minimize the tax impact while still covering her education costs. For anyone else reading this who might face a similar situation in the future, this thread is a goldmine of practical advice. The key takeaway seems to be: don't panic, research all your options (especially state and federal retraining programs), and strongly consider the direct rollover approach to preserve maximum flexibility while avoiding immediate tax consequences.

This thread has been so helpful! I was in the same boat a few months ago - completely confused about the W-4 because everything I found online was talking about the old allowance system. Like everyone else has mentioned, the 2020 redesign really simplified things. For your situation (single, no dependents, one job), you literally just check "Single or Married filing separately" in Step 1, fill out your basic info in Steps 2-3, and sign in Step 5. That's it! I did exactly this and ended up with a $38 refund last year - pretty much perfect. The IRS really did design the new form to automatically withhold the right amount for straightforward situations like ours. If you're still worried about owing, the IRS withholding calculator at irs.gov/W4App is great for double-checking, but honestly the standard withholding should work perfectly for you!

I was literally just dealing with this same confusion a few weeks ago when I started my new job! Like everyone else has said, they completely changed the W-4 in 2020 and got rid of the whole allowance thing. Since you're single with no dependents and one job, you just need to fill out Step 1 (check Single), your basic info, and sign it - that's literally it! I was so worried about getting it wrong, but I ended up with a $41 refund which was pretty much exactly what I wanted. The new system really does work well for straightforward situations like ours. Don't stress about it too much - the IRS actually made it way easier than it used to be!

Just to clarify something that hasn't been mentioned: if your employee does the exempt W-4 for one week, they'll need to complete yet another W-4 within 10 days of the start of the next calendar year. The IRS requires a new W-4 annually from anyone claiming exempt status. Also, as others have said, the employee should be aware that if they don't qualify for exempt status (had no tax liability last year AND expect none this year), they could face penalties for underwithholding when they file their taxes.

As someone who's dealt with payroll for over a decade, I'd strongly recommend against the exempt route unless your employee truly qualifies (zero tax liability last year AND this year). Instead, here are some safer alternatives: 1. **Payroll advance** - This is probably your cleanest option. You can advance him pay for future work, withhold taxes normally, then deduct it from his next regular paycheck. 2. **Temporary W-4 adjustment** - He can increase his allowances/deductions on a new W-4 to reduce withholding significantly without going full exempt. Much safer legally. 3. **Emergency loan program** - Consider establishing a small emergency loan fund for employees. Many small businesses do this for situations exactly like this. The key thing to remember is that you're not responsible for verifying his exempt claim, but if he doesn't actually qualify and claims exempt anyway, he could face penalties at tax time. The IRS has been cracking down on improper exempt claims lately. Given he's been with you 3 years and is a good employee, I'd lean toward the payroll advance option if your cash flow can handle it.

Great breakdown of the pricing differences! I went through a similar comparison last year and was shocked at how much I was overpaying with the big-name services. One thing I'd add is to watch out for the upselling tactics during the filing process. H&R Block and TurboTax are notorious for starting you on their "free" tier and then gradually pushing you toward premium features you probably don't need. FreeTaxUSA is much more upfront about what costs extra, and their base paid tier covers most situations without the constant upgrade prompts. The only scenario where I might consider paying more is if you have a really complex tax situation with multiple rental properties, foreign income, or complicated business structures. But for the vast majority of people filing standard W-2s with some basic investments and deductions, you're absolutely making the smart choice going with the cheaper option.

Completely agree with your choice! I made the same switch two years ago and haven't looked back. The price difference is absolutely ridiculous for what you get. One thing I learned is that most of these tax software companies are literally using the same underlying tax calculation engines - they're all just different interfaces wrapped around the same IRS forms and tax code. So you're essentially paying $80+ extra for flashier graphics and brand recognition. I also appreciate that FreeTaxUSA doesn't bombard you with constant upsells during the filing process. With H&R Block, I felt like I was being pitched something new every other screen - "premium support," "maximum refund review," "audit protection" - most of which are unnecessary for straightforward returns like yours. The only people I know who still use the expensive services are either those with very complex business situations or folks who just haven't realized there are better alternatives. For standard W-2 employees with basic investments and deductions, FreeTaxUSA is definitely the way to go.