| New 401K plan - new employer |
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spcalan1
New Member
Cash: $ 1.80
Posts: 8
Joined: 30 Sep 2012
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| New 401K plan - new employer |
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I left a job after 5 years ( $39k / year ) to a new job making $60k. I am very happy so far.
Old job - I put 6% and they matched 4% - After 5 years. I now have $20k in old 401K.
New job - I am putting in 10% and they match 3%.
I am thinking of cashing out the old one to pay off 20K in debt.
I know.. bad move.. but new 401K will definitely catch up !
Thoughts ?
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Sun Sep 30, 2012 1:09 am |
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Wino
Senior Member
Cash: $ 113.80
Posts: 560
Joined: 03 Aug 2012
Location: Dubai
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Very bad move.
First off, you will pay a 10% penalty. Therefore, your $20K becomes $18K just by borrowing it. Then, the difference is added to THIS YEAR's income. Since you're now making $60K, your income goes to $78K for this year.
I now have to make some assumptions. I will assume you are single and paying US taxes (else why have a 401K?).
This means your income is now in the 25% tax bracket. Your $18K just became $13.5K. You are paying $6,500 for the use of your own money. You are paying an effective interest rate of 32.5% for this privilege.
You just got a $21K raise. You can cash flow (pay off monthly) the same amount of money at $1,200 per month for eleven months, and have MORE money at the end of the year. Of course, this means you have to keep living like you make $39K for a while longer, but if you can keep that mindset and SAVE most of the difference, in 6 years, you can have (easily) $100K in the bank. Assuming a decent investment vehicle, you should have over $1million in about 25 years; that's assuming only an 8% return, which should be "doable." You will have deposited $360K in those 25 years to get the $1M+ amount.
Or, you can spend it all, borrow more, and owe $100,000. in 5 years and be coming back here asking if you should use your NEW 401K that you've been putting 10% into for five years to pay off most of your debt.
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Sun Sep 30, 2012 1:30 am |
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spcalan1
New Member
Cash: $ 1.80
Posts: 8
Joined: 30 Sep 2012
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Thanks for the response.
I am keeping my 401k put and using my weekly increases to pay off debt. Starting on friday ( next pay day ). I will write a check for the 800 increase to a bill.
It will be MIND BLOWING how fast I will erase this debt .
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Sun Sep 30, 2012 4:06 am |
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Anton Martin
Full Member
Cash: $ 15.00
Posts: 73
Joined: 23 Nov 2012
Location: Florida, USA
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| Re: New 401K plan - new employer |
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quote:
Originally posted by spcalan1
I left a job after 5 years ( $39k / year ) to a new job making $60k. I am very happy so far.
Old job - I put 6% and they matched 4% - After 5 years. I now have $20k in old 401K.
New job - I am putting in 10% and they match 3%.
I am thinking of cashing out the old one to pay off 20K in debt.
I know.. bad move.. but new 401K will definitely catch up !
Thoughts ?
I think moving that money to IRA account will be a good move rater than cashing old 401k money. As you said new 401k will cover up that money, but still you can use IRA account money for paying your debts, and your money will be safe and you can also use that money for other investments options.
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Mon Dec 03, 2012 9:00 am |
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