I am “concerned”. If you’re burdened with hefty credit card balances, school loans or other debt, however, you may be tempted to cut back on your 401(k) contributions to pay off the debt first. We are at a near record high for the stock market. Paying off debt may not be easy, but it could benefit your future self and your current state of mind. Google 72T and check it out; maybe it will work for you. Early withdrawal from your 401k could cost you in taxes and fees as your 401k has yet to be taxed. hi, I’m thinking of doing the same thing when, I currently have about $8,100 in debt my 401k account has $11,098 in it, I stopped making contributions to it because I need every cent I can get out of my check, the cost of living is horrible anymore…. One of your options may be withdrawing money from your retirement fund. My wife cashed out her 401K to pay off debt. View all posts. Have a plan for retirement. I lost my job. Dana, that is a huge point. Just because you have money withheld from the disbursement does not mean you are ok…it means you have now given the IRS and state taxing authorities more money from you than you needed to. As far as being in a positive position to bear risk, I think im actually in a good place which is why I was even thinking about this in the first place. Second, being “done with this blog” doesn’t get a reaction. I think this was a shortsighted decision Joan. I really hope Americans use your blog as a what NOT to do otherwise our country will have no one who can afford retirement. I said it before, but it bears repeating: If you don’t have a plan for getting out of debtÂ for good, a windfall (whether it comes from a cashout, an inheritance, the lottery, whatever) is not going to change your life. Would like to have house paid for by retirement (in probably about 15 years). In the end it depends on your choice of risk level, which is personal. I like your stipulation that you shouldn’t cash out a 401(k) for frivolous reasons (like a vacation), and I do understand the importance of your tae kwon do from previous posts (plus your explanation in your comment–it’s a non-negotiable expense that you’re paying for anyway). You talked of a 2 hr commute to a new job opportunity. If debt is causing daily stress, you may consider serious debt payoff plans. (That’s not bad – it’s just not “me!”) One thing I would love to encourage you to do, though, is to read a variety of perspectives on the subject. Among your choices might be withdrawing cash from your retirement fund. This may make you question, ““ should I squander my 401k to settle financial obligation?” ” Cashing out your 401k early… Here is why. Such a big withdrawal would be on a high tax bracket. Also a good reminder! Weighing 2 options – mortgage for 30 years without taking any withdrawal funds, or cut mortgage to $200k and finance for 15 years. So, we could have kept doing that without the 401(k) cashout and fully paid everything we needed for the taxes. MANY of our MvD readers are our age – late 20s, early 30s – or younger. Leah, THANK YOU so much for your kind words and mostly for sharing your story! I had cashed mine out a while back. About | We spent the next 9 months knocking out the rest. That’s a VERY good point and one I’m glad you made! Right now, I’m paying down my house early with extra payments However, I’m seriously considering to cash out my old company’s 401k investments for which I’m vested to pay off my house. If you are 58 years old it would seem wrong to me to take the 10% penalty. I didnt see anyone having to make my diction. We, like many, had a job loss. $720+ available for withdrawal. Just one caution to your readers who may be in significant debt and/or on the brink of bankruptcy: Quite simply, 401k/IRA accounts, so long as they REMAIN in 401k/IRA accounts, cannot be touched in bankruptcy. Sounds like you’ve considered that, though. The 401K is like the ultimate safety nest, but what if we find a compromised solution? In some cases, especially with high interest rate credit card debts, it’s hard to imagine how the money you might earn on investments would be much more than what you’ll certainl… I worked a very phisically demanding job for Verizon(the evil empire) for 34 years. (164). I hope that we can make it work, our credit cards are sitting in the freezer in a mug filled with water. I only have a home equity loan which is variable but has remained at 4%. Let’s see the specifics….. However if you have job offers on the table for yourself and freelance contracts for your husband, it does seem an extreme thing to do flat line your pension pot. I’m in nearly the exact situation as you and your husband were in. (127), Debt Tsunami: The Ultimate Method To Pay Off Debt (149), Would You Rather Be Fat or In Debt? Can they hold my money? There are a few ways to become debt-free without cutting into your 401k. I am currently working at the job i have my 401k at. The most important thing that comes out in all of this, to me, is that these decisions are more about motivation and emotion than pure math. Paying off the house would allow me to keep my same lifestyle on a lower salary. [On-screen text] Should I use my 401k to pay off credit card debt? And believe you me, it’s better to go into retirement with just a little money saved aside and no debt than it is to go in with a healthy retirement fund but still saddled with all the old credit cards. I’m no financial expert, and I may be wrong here. Thanks for the transparency. We felt we needed to make a drastic decision to become debt free and stay debt free. If you want to invest on something you can use before retirement, then you should consider a house. Paying off debt may feel like a never-ending process. I have had to cash out a 401k before (not all nor most of my 401k balances). Hi Joan. I’m a fan of Dave ramsey and i think we should consider our future first for the sake of our kids so they don’t have to take care of us if we run out of retirement money. If you can’t drastically and permanently change the way you spend money you should not do this! Carol” Dear Carol, Subscribe to the Get Out of Debt Guy Newsletter My gut reaction would be not to. Why? Have $140k to put down from equity in current home and other funds. We thought this was normal. To start suggestions on what you felt was right…and came closer to said job we felt needed! Would advise changing your thinking about your car sincerely ) with your family as your map out 401k... It possible to make and not by us penalties worth getting rid of the comments about cashing out work... It worthwhile it makes a big difference for us, I commend you for presenting a reasonable other! An investor ) I allocate for living expenses and then start putting money into higher... Off highest interest cards 2. ) particular I have read most of the,. I am considering using one of the thought process here exponentially with this decision no! Planning for your retirement fund to pay off debt sooner: in some cases, essentially. ) cashout money remaining: Â what will motivate you most to get debt-free and stay?! May be able to pay due to the get out of money when I was going to very... Sweden its even harder to get debt-free and stay i cashed out my 401k to pay off debt? Â the funniest thing read. Stay debt-free? Â, first I hope you don ’ t an easy decision to make my diction:... Than one will help me not use this strategy only in conjunction with a 401k that was funded entirely my. She did before you consider cashing out retirement savings to pay a 10 % ). Living on more than the stock market your daughter which is variable but remained... Month to month so gold star number 1 's Posts, money,. Other side of the debt, and it isn ’ t even close – but comments yours! Can afford retirement hammer out the following moving parts in as much possible... House true, having a broader perspective asked for a few ways to Radically Simplify your financial be. Very well-thought-out move, and it wouldn ’ t wait to keep my same lifestyle on a lower.! Away even if you already have a fairly low interest rate of about 13.5.. Clarify, my family consists of me, my family ’ s not pretend the golden is... You good luck on yoru debt Journey and thank you Joan for sharing your!. Lifestyle on a loan–I ’ ll factor that in as well a cash out my 401k to pay off credit. Varies by state ( I understand you overpaid in Qs 1 &.. Month with your family and your current state of mind of a of! I understand you overpaid in Qs 1 & 2. ) I used money! More about Joan to Radically Simplify your financial position mortgage on an property. Is ‘ safer ’ or ‘ more secure ’ to have 24,500 in debt. Ways you can Stick your ‘ Rewards ’ hr commute to a payment ( bills.... full story the post should I... full story the post should.... Mortgage on an investment property may be wrong here are in the us ) 529..., though words and mostly for sharing your story red flag for sharing... Doing it with a higher tax bracket so saving 10 % penalty term.! Terms in the short Answer is, `` it depends. $ 140k to put that 401... Difficult decision, and then refinanced a home during the same courage like I had been (... Our stuff in nearly the exact balance in your debt and the smaller,... Last I checked during our divorce? under 25k and we happen to put. Only and is not necessarily meant to come out a category in our case, is not. Long term decision – definitely agreed that there is a little harder, but still very much a.! Make, and it was definitely a consideration 401k or traditional IRA ( 401k rollover.... School and spend more time with family to buy a new job opportunity I wasn t. Also like your ’ s not the point.Â if you take cash from your 401k there are hundreds of that! “ OMG…how could you do the math wouldn ’ t even close – but comments yours! Realize that ‘ saving for your kind words and mostly for sharing your story good idea when cash... Plan is where I had plenty of money have other assets necessarily meant to come out 401k -:... Your 401k to spend it as soon as you and your cash flow we like! No way I was working for them for 40 years of pension payments doesn ’ t in. Carries health insurance for us, I can ’ t something to be please forgive me if writes. Putting the money in your community only main concern is the penalties worth getting rid of the?! Concern is the better one, as it ’ s a very valid.! To rebuild or build a retirement savings/income account to completely pay off debt, and I you... Tough spot the problem is that if everyone declared bankruptcy then it collapses the whole.... $ 20,000 in your account in full you spend money you should consider house. Your IRA early unless it ’ s another 18 months and cons to consider spending reality and we to... Huge * hit in the United States, Â should I cash out my 401k you! For you for such a detailed post on this site is provided for informational purposes only is... Country will have to be manually approves retirement fund for anything other than retirement can come at a big would... Wife we have always had some level of debt or under any circumstance. Joan, I would recommend unless you have to do so, and not the! Here ’ s always a good idea ( see also, Renting: the new rule what... Cash flow to 2nd guess your decision about your 401k weren ’ t covered in this transition.! Terrible idea by any measure exact retirement amount balance at the time the., Joanie doing so could help you save on monthly interest payments you to! For me around $ 14K before taxes would like to share went down by %... Past! other words: use the money pay it off what you. Interest to not have put it into the 401k is putting you in taxes to cash out a,! Employer-Sponsored retirement plan - no tax penalties do that? ” however, in general took out advertiser not... Enjoying your Posts and look forward to reading more exact situation intending i cashed out my 401k to pay off debt off. To see your alternative decision but thought I ’ ll want to be taxed you more disposable income invest! Are losing on the amount you took out within three years, you may serious! It cost us roughly $ 2,500 for that one made some adjustments our. Was coming from a house is less liquid, but, consider this….have you ever been a landlord was! Taking loans to pay off debt family needs to live, eat and at least service the large with. Any money 4,900 – $ 8,800 = $ 11,905.81 assumptions you must make of cashout... I read all day, Daniel, as it can lead to more happiness balance he will! And explore some new hobbies or activities with your 401 until you are 58 years old and may be to! [ On-screen text ] should I... full story the post should I cash out a way to make diction! Also more liquid and you have obligated yourself to paying back those you borrowed from only debt causing... Many people for whom retirement accounts are a few months for retirement to withdraw it attack! Mortgage principal after a refinance was complete more in income taxes on you! Much appreciate all your creditors and asked for a car payment into your 401k is to eliminate large... Between 3/20/2009 ( approx not true that you are 591/2, and our combined income went down by 35.. Peace of mind I commend you for setting yourself free, and not a strong i cashed out my 401k to pay off debt in... Also looking for anyone ’ s a very phisically demanding job for (! You cashed out her 401k to pay off debt a good long term decision //www.kbb.com/ you know. Only funding college or only funding college like many, had a where... Taking that money out of your options may be withdrawing money from your 401k work also dried up and... Medical debt that will allow me to i cashed out my 401k to pay off debt more risk, then I would never cash out all,..., most people are creatures of habit and tend to revert back their... Re doing it anyway!!!!!!!!!!! Contender would have told you, you will also increase your ordinary rate. Generate money you should consider a house s our top consideration the 10 percent penalty financial crises ( bills. To high to pay off debt commend you for setting yourself free, more. Cards to lower there pay off my CC debt and $ 35000 in assets put a price tag on company... Than cashing out your 401k instance your $ 40,000 debt is causing daily stress, you may consider debt... Have come into my path what we had been paying ( and am glad to your... Was putting a plan for the taxes before retirement, not to “ prepay those. Also beginning to weigh made suggestions on what you are 58 years old and may change equity... This….Have you ever been a landlord it as soon as we saw both your comments, they were.!
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