Quit job, should I cash in my 401K?

AlwayzRight · Aug 28, 2008

I have started a new job and now have the option to get a lump sum payment of my 401K. I have about 13K in my 401K and am only 29. I have about 7K in credit card debt that is hurting me and my Fico score due to my debt to income ratio. I would like to buy a house in the next 4-6 months and have got to get the FICO score up. The only way to do this is to get rid of my revolving credit balances. I also could use some extra cash each month. I know I will get hammered with taxes and will only see about 60% of this but all that is going to taxes would be what my company matched to me in the first place. I do not want to roll it over and then borrow from it because I do not want to have another payment that I have to pay each month.

Should I do this? What are everyones opinion on this situation?

TheRightSide · Aug 28, 2008

You are still young and could make that money back up. Think about every penny you can put down on your house you will save a ton of money. You can get a loan out of your 401K if you are a first time buyer.

If you take it all out you will be able to cover your debt. Just be sure not to go back into CC debt and you will have plenty of money to invest.

I would do it. Having no CC payments is a great feeling and it gives you more power and freedom.

CC debt is never good.

Under 30 no wonder you are a lefty :103631605

. Wait till you realy start making money.

ChalksR4Kids · Aug 28, 2008

No, no, no. Do not do it. From the tiny acorn grows the mighty oak. What looks like a small amount of money now will be megabucks when you get old. Do not waste it on taxes.
Definitely look into getting another credit card and transferring the balance at some low interest rate. If you have to, get a second job, collect beer cans, take candy from the mouths of children.....whatever. Just don't pull anything out of your retirement funds.
As far as buying a house in the next 4-6 months, don't worry about it. We are in a huge housing crash and you have plenty of time to find some great bargains.

PercocetThreat · Aug 28, 2008

TheRightSide said:
You are still young and could make that money back up. Think about every penny you can put down on your house you will save a ton of money. You can get a loan out of your 401K if you are a first time buyer.

If you take it all out you will be able to cover your debt. Just be sure not to go back into CC debt and you will have plenty of money to invest.

I would do it. Having no CC payments is a great feeling and it gives you more power and freedom.

CC debt is never good.

Under 30 no wonder you are a lefty. Wait till you realy start making money.

A loan is not a definite; the Plan's document needs to be written to allow for them. Also, most docs require that the loan is repaid via payroll deduction, since you aren't working there anymore that is out the window.

Remember the 10% penalty tax in addition to the w/d being taxed as ordinary income. With all that said, it may not be the worst thing to use the money to pay off your CC debt. I'm not a big fan of using retirement funds to pay off CC debt but in your case it looks like it makes sense.

teamogf · Aug 28, 2008

I am a banker and see people do this all the time. Do Not Do It!! It doesn't make any sense. When looking to get a mortgage ask about rolling that cc debt into the fixed mortgage. With compounding over the years, that $13000 could be worth $180,000+. Also I would reccomend you roll it into an IRA instead of your new job's 401k plan. You'll have more investment options. Good luck to you.

bellyputter · Aug 28, 2008

Using simple math, one of the dumbest investment decisions you will ever make.

AlwayzRight · Aug 28, 2008

Any more opinions out there?

LineTamer+ · Aug 28, 2008

My Advice is not to do it.

The market is down right now, so you are selling at a loss. Roll it over to an IRA and buy some new funds at a low. Forget about it an let it grow.

10% penalty, ordinary income and bad market conditions (for selling) is too much to pay/give up. When the market rebounds you'll be missing out on a lot more than what you paid in tax and penalities.

Find a new card with a 0% intro rate, consolidate them and pay them off over the course of the next yr or so. And look for buying opportunities along the way as they will only get better over the next 1-2 yrs.

Onlyh contribute to the new 401k plan up to your match amount. Use the rest to pay down debt.

maxdemo · Aug 28, 2008

TheRightSide said:
Having no CC payments is a great feeling and it gives you more power and freedom.

Agree 100%.. been credit card fee for over 2 yrs:toast:

CHOPTALK · Aug 28, 2008

Never make a permanent decision based on a temporary situation.

The people who said dont do it are smart.
The people who said do it are dumb.

BUCSnotYUCKS · Aug 28, 2008

To put it pretty simple, DONT.

whalewager · Aug 28, 2008

Only a democrat would ask this dumbass question.

AlwayzRight · Aug 28, 2008

georgejefferson said:
Only a democrat would ask this dumbass question.

Nope, not a democrap or repoopican...

Why do you idiots think im left? Votin for Obama but I am a progressive conservative....If I had my choice it would be Ron Paul.

PercocetThreat · Aug 28, 2008

Line Tamer said:
My Advice is not to do it.

The market is down right now, so you are selling at a loss. Roll it over to an IRA and buy some new funds at a low. Forget about it an let it grow.

10% penalty, ordinary income and bad market conditions (for selling) is too much to pay/give up. When the market rebounds you'll be missing out on a lot more than what you paid in tax and penalities.

Find a new card with a 0% intro rate, consolidate them and pay them off over the course of the next yr or so. And look for buying opportunities along the way as they will only get better over the next 1-2 yrs.

Onlyh contribute to the new 401k plan up to your match amount. Use the rest to pay down debt.

That's good advice; especially about the 0% CC/consolidation of other CC debt.

BUCSnotYUCKS · Aug 28, 2008

AlwayzRight said:
Nope, not a democrap or repoopican...

Why do you idiots think im left? Votin for Obama but I am a progressive conservative....If I had my choice it would be Ron Paul.

Make that 2 for Ron Paul!

zeeman · Aug 28, 2008

There are exceptions to the early withdrawal penalty of 10%. To avoid 10 % penalty there are like 5 exceptions. One may be 1st time home buyer. another one is to pay for medical expenses. You would still be subject to ordinary income tax, but you may be able to avoid 10 % early withdraw penalty.

CHOPTALK · Aug 28, 2008

AlwayzRight said:
Nope, not a democrap or repoopican...

Why do you idiots think im left? Votin for Obama but I am a progressive conservative....If I had my choice it would be Ron Paul.

How can you go from ron paul to Obama.
This tells me that you dont even know who Obama is.
Its not possiable for a progressive conservative to vote obama.

That would be like a muslim praying the rosery.
Cant be done.
Do your homework and realize that you are voting for a socialist.

If Ron Paul knew one of his supporters were voting for Obama, he would probably kill himself.

bodyforlife · Aug 28, 2008

Alwayzright,

I concur with the "no". I have a friend in the same boat right now. This is what will happen....

Fed takes a 20% withholding right off the top (so the 13,000 just turned into 10,400). You add the distribution into your ordinary income for the year (now you're in a higher tax bracket and will pay more to the government). Next, Fed penalizes you 10% and state penalizes you 2 1/2% (actually this is California...not sure on other states). And you're getting out of the market at a time that you should be staying put (you're selling low). Ok, no more preaching (everyone else has preached to you also). Here's a site that I've found that is the best on the net if you're opting to do a balance transfer for a limited time 0% interest (12 - 15 months). Be aware, that you probably won't find any card that will do the balance transfer for free (most charge at least 3%)

http://www.mycreditstrategy.com/mostpopularcreditcards.html

I wish you luck my friend!

PercocetThreat · Aug 28, 2008

zeeman said:
There are exceptions to the early withdrawal penalty of 10%. To avoid 10 % penalty there are like 5 exceptions. One may be 1st time home buyer. another one is to pay for medical expenses. You would still be subject to ordinary income tax, but you may be able to avoid 10 % early withdraw penalty.

I'm 99% sure the home buyer exception only applies to IRA's, not 401(k)'s. There is the exception for medical expenses but they have to be a large amount, something like 10% of income.

AlwayzRight · Aug 28, 2008

CHOPTALK said:
How can you go from ron paul to Obama.
This tells me that you dont even know who Obama is.
Its not possiable for a progressive conservative to vote obama.

That would be like a muslim praying the rosery.
Cant be done.
Do your homework and realize that you are voting for a socialist.

If Ron Paul knew one of his supporters were voting for Obama, he would probably kill himself.

I know what Obama is... but that is still better than McBush. Ron Paul agrees with Obamas foreign policy so don't give me that shit. Actually, there are ALOT of Ron Paul supporters (probably more than half) that will be voting Obama instead of McCain. When looking at these two clowns, foreign policy is what it came down to for me when choosing between McCain and Obama. They are BOTH fiscally liberal idiots but getting us out of Iraq and trying to do WHATEVER it takes to keep us out of Iran and other countries is one of the top issues for me.

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