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The answer is always the same when asking about borrowing from your 401k. There will NEVER be an excuse good enough to take money out of a 401K. It simply does not exist until you retire, PERIOD...
Whatever rationalization you can come up with, forget it and find another way..
I know you won't listen, but at least now you know the truth before you make a huge mistake....
This is just not true.
You could easily borrow the amount to pay off high interest credit card debt, make the same payments but to your 401k, and come out way ahead.
Maybe I'm asking a stupid question but if you're in the 33% tax bracket why can't you just throw money at this debt for a year and skip this conversation altogether?
A lot of people have brought up borrowing from the 401(k), but that isn't an option from her 401(k) since she doesn't work for the company anymore.
Here's the real solution. Take out a 401(k) loan against HIS 401(k). Reduce his contribution rate if necessary in order to handle the repayment of the loan towards the 401(k). That interest is money you're paying back to yourself, so it's essentially an interest free loan(you just lose out on the potential gains, but those are more than offset by the the reduced credit card rate).
Thats what I was going to suggest. Even just maintaining the same contrib rate they could come out even or ahead on monthly payments depending on the length of the loan.
It's very unlikely that the interest rate on your debts would add up to as much as you would lose in an early 401k withdrawal. You should wait it out and find another way to pay off these debts, early 401k withdrawals are such a massive loss of money. It's definitely possible if you absolutely think you need to pay them off right now, but really I doubt that you do. It's okay to take a long time to pay off debt. Please try to find another way.
I think people need to realize there are two EXTREMELY different terms that get tossed around interchangebly
A 401(k) WITHDRAWL will be subject to a large amount of taxes(your ordinary rate plus a penalty). You'll typically wind up losing about half the value you take out(exact amount depends on your tax bracket + state income taxes, but call it half for ease of conversation)
A 401(k) LOAN is not penalized this way. You can only withdraw half of your current balance(so if you had a 401(k) worth $20,000 you could only take out $10,000) and it must be repaid in a relatively short period of time (within 5 years is common). If you leave the company providing your 401(k), it is immediately due. The nice part about this, is that there is no tax hit at all. Additionally, the interest you pay on this loan is interest paid back into your 401(k). You're basically borrowing money from yourself, and then paying yourself back within interest.
Also, some people try to make the argument that you're paying back a 401(k) loan with after tax dollars. This argument is flawed. Yes, you do pay it back with after tax dollars, but you get to pay off your CC Debt (or whatever you use it for) with pre-tax dollars since the $10,000 you take from there was never taxed. At the end of the day, you're still only getting taxed once.
A 401(k) loan for high interest credit card debt should definitely be consider, but only if you're not racking up more debt. If bankruptcy is a possibility, the 401(k) is usually protected, so if you tap that to pay off some of the CC but go bankrupt, you will have thrown away the money.
I think people need to realize there are two EXTREMELY different terms that get tossed around interchangebly
A 401(k) WITHDRAWL will be subject to a large amount of taxes(your ordinary rate plus a penalty). You'll typically wind up losing about half the value you take out(exact amount depends on your tax bracket + state income taxes, but call it half for ease of conversation)
A 401(k) LOAN is not penalized this way. You can only withdraw half of your current balance(so if you had a 401(k) worth $20,000 you could only take out $10,000) and it must be repaid in a relatively short period of time (within 5 years is common). If you leave the company providing your 401(k), it is immediately due. The nice part about this, is that there is no tax hit at all. Additionally, the interest you pay on this loan is interest paid back into your 401(k). You're basically borrowing money from yourself, and then paying yourself back within interest.
Also, some people try to make the argument that you're paying back a 401(k) loan with after tax dollars. This argument is flawed. Yes, you do pay it back with after tax dollars, but you get to pay off your CC Debt (or whatever you use it for) with pre-tax dollars since the $10,000 you take from there was never taxed. At the end of the day, you're still only getting taxed once.
A 401(k) loan for high interest credit card debt should definitely be consider, but only if you're not racking up more debt. If bankruptcy is a possibility, the 401(k) is usually protected, so if you tap that to pay off some of the CC but go bankrupt, you will have thrown away the money.
However -- regarding the OP -- she can't have a loan. She doesn't work there anymore. That means you can only do a withdrawal.
However -- regarding the OP -- she can't have a loan. She doesn't work there anymore. That means you can only do a withdrawal.
That one was answered earlier in the thread.
Quote:
Originally Posted by Jeo123
A lot of people have brought up borrowing from the 401(k), but that isn't an option from her 401(k) since she doesn't work for the company anymore.
Here's the real solution. Take out a 401(k) loan against HIS 401(k). Reduce his contribution rate if necessary in order to handle the repayment of the loan towards the 401(k). That interest is money you're paying back to yourself, so it's essentially an interest free loan(you just lose out on the potential gains, but those are more than offset by the the reduced credit card rate).
The OP explained that they have enough in his retirement account to cover them, which means it's presumably more than she has. Tap that as a loan instead of even considering a withdrawal.
Extending/REVOLVING credit is the Banksters American Dream
Quote:
Originally Posted by harpoonalt
No it wasn't smart, but it was. When I took it out the market was at an all time high and then crashed. I don't regret doing it as the land has brought me a lot of happiness and has appreciated considerably in value. And our 401k's were probably overfunded anyway...A balance on a 24% credit card is insane.
Ah, old school decision-making skills. Good for you!
Notice how all the "Don't touch your 401k" advice involves extending Bankster payments, while participants keep digging the credit ditch deeper & deeper.
Quote:
Originally Posted by Gandalara
Because if the spending problem isn't fixed (stopped), the existing problem will happen over and over and over.
Yep. "I need to pay off some debts quickly to move forward with our life" sounds like the OP has a fundamental plan to financial freedom.
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Extending/REVOLVING credit is the Banksters American Dream
