crazyhumans
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As long as you are putting the maximum in. It is never a good idea to dip into your retirement funds but if it is a one time deal, it should be okay. If you are taking a loan against your 401(k) there is no penalty or tax as you will have to pay it back. You cannot just take out amounts from your 401(k). The only way you can close out 401(k) is for hardship. There is a severe penalty for that. |
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Jeff M
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It depends on how old you are(so it can build up again), and if you are willing to pay the HUGE tax on it. You would probably have to take $20k out to get the $12k you want. |
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Emperor Norton II
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This is the type of question that requires more numbers before you can get a good answer. What is your income? How much is your contribution percentage (assuming you are still contributing to the 401 k)? How old are you? What are the types of debts, and the amounts? What is the interest on each debt? How much of a return have you been getting on your 401k investments?
If you take out $12,000 you will pay income tax on the $12,000, plus a 10% penalty ($1,200) for federal, and depending on your state, possibly a penalty for the state as well . For instance California has a 2.5% penalty..
So it isn't exactly a great idea. But if you have credit cards with a 30% interest rate then it becomes a better idea. Also your age plays a part. The closer you are to retirement, the less likely you are to benifit from the small, long-term gains of compounding your investment caoital. |
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yogurtsoju
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DO you own a house? refi and cash out. Pay off your debts and put the rest of the money into a high return CD account. Within a couple of years your savings will double and you'll have more financial security because you'll be getting interest. |
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hobby
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BAD idea. If you get canned or quit, you'd have to pay the money back immediately. And, there are too many tax and early withdrawal penalties.
Get 2-3 part-time jobs at night/weekends. And, have a garage sale. |
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Tudaan
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I don't think it is a good idea. I have no real info to back this decision up, I just know that I would not do it. |
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auntb93again
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Don't just take a distribution, or you will owe penalty and taxes on it. Take a loan, and pay it back. After all, you're loaning to yourself, and paying yourself back. Unless you are over 59 1/2 years old, in which case you won't owe any penalty, but will still owe income taxes. |
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reichman2007
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Do it. If you really need to pay off some debt..you may have less later...but have no debts. |
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fcas80
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Expect to pay a penalty and a tax. |
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steveb106
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I've always been told to NEVER touch my 401k, just pretend it doesn't even exist. A lot of people I know who just got married will use their 401k to either put a down payment on a house or flat out buy a house. Bad idea.
Think of it this way, if you don't touch your 401k you can probably retire by the time you're 60 depending on what kind of money you make. If you use it then it'll set you back, couple years at least. |
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curiositycat
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It depends. If this will totally make you debt free, it might be a good idea. If not, then you need to consider penalties and how much interest and taxes you will pay. 401K's are essentially free money and you don't want to blow any matching funds. It really depends on your plan. Talk to your plan administrator-they will assist you with specifics. |
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funnyman
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Id say bad idea only because you're taking out more then 1/3 of your 401k. However, if this debt is extremley bad, you might want to consider it your last option. |
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vegas_iwish
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If young - horrible idea. Just creating a nice big tax liability. Debt would have to be crushingly expensive or otherwise life-ruining to do this. Cut down on current 401k inflows if must but leave what is there alone. |
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QandAGuy
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Bad idea. If you are having financial problems consider contacting a financial counselor. Many work for little or no fees since they are non-profits. Put "consumer credit counseling" into Google and you'll see several options. They can help spread out your payments or reduce them or both.
401Ks should almost always be sacred. The one exception might be borrowing to buy a home - but even then that seldom turns out to be a good deal. It feels great to pay off the debt ,but don't hurt yourself in the long-term by sacraficing your retirement account- it's hard enough to save for that right now. |
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Kord, the Seeker
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The conservative answer to your question is that it is probably a bad idea to take money out of your 401(k) to pay off debt. You would be better off lowering your contribution to your 401(k) and cutting back other expenses to pay off this debt.
The long answer is that there are other considerations to take into account: How old are you, and how close are you to retirement? Will you have time to pay this money back? Can you afford to lose the earnings you would have had on this 12k had you left it alone? Will the lost earnings offset the savings by paying down the debt? How much of your retirement income are you counting on your 401(k) for? Do you have other sources of retirement income?
I know this is a lot to consider, but it's a complicated issue, and there isn't any "yes" or "no" answer. |
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Granny 1
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You can borrow from your 401k without penalty, and pay it back with interest to your self, Check with your employee on the details |
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YourDreamDoc
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you have to pay 10% penality you know.. depending on your debt.. may worth it.. just dont pile debt again |
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Dave
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Don't do it. Listen to those people who said borrow against it. Check with your 401k administrator to find out it loans are permitted in your plan.
It's a slippery slope. I've known several people who took money out of their retirement plans to buy a house. They all wound up losing the house eventually, too. It seems that people who don't have the discipline to leave their retirement funds alone usually lack the discipline to save any money anywhere, or to manage their money wisely.
Don't start. |
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peacockaeb@sbcglobal.net
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check into it first because allot of 401k's you can take out the money but you have to pay it back with interest. If this is the case determine whether the interest you are paying back you will lower your interest for your debt. Then decide from there. But if you do not have to pay it back with interest than I would say defiantly go for it, just as long as you don't run the debt back up. Then you will be in the same predicament then you were before just less money in the 401k. |
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David D
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There are some useful tips here. |
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Emily C
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Bad idea you will get slammed with a bunch of penalty bills that makes it so not worth it. Plus better to keep saving up for your retirement. |
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Larry Hart
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I am considering taking $42,000 from my 401k, paying off my current home, then buying a retirement home in the mountains. I am 65 tears old, no debt except for my home balance, plus one car payment. I still work, my wife still works. I will use the original house payment funds to buy the new home in the mountains. I am pre-qualified with a 4.5% loan for this home. My FiCO is over 800. What should I do? I realize the money from my 401K would be income.
Thanks |
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