Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




over 60 - use 401k to pay off credit cards?

Reply to topic
Money Talk > Credit & Loans

Author Thread
ncolello
New Member


Cash: $ 2.05

Posts: 9
Joined: 22 Aug 2013
Location: Hudson Valley
over 60 - use 401k to pay off credit cards?  Reply with quote  

I have about 70k in consumer debt, credit cards & overdraft loan ranging from 6.5% to 18%.
I have about $320k in a former state deferred savings account, current 401k, old 401k & traditional IRA. I am still working full time with a 4% contributory 401k and collecting a traditional retirement (monthly net about $9k) but am struggling to pay off the credit cards. I also have parent plus college loans $80k that are deferred for another 18 months.
I know the general rule is not to take 401k to pay off credit cards but I am almost 65 so there is not a penalty and I will be collecting SSA in 18 months.
If I pay off the credit cards, I would be saving about $800/mo in interest.
I was thinking of paying off the consumer debt with money from my IRA & old 401k, freeing up about $2k/mo in minimum payments, using the money to attack the college loan and max out a Roth IRA to replenish the retirement.

Only other debt is home mortgage $203k, 2nd mortgage $16k on a $340k home.

Any thoughts
Neil
Post Thu Aug 22, 2013 12:43 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

You have $320k minus $150k loans, ie $170,000 available net worth.

Your house payment will be about $30,000 over 18 months.

And your pension will be $162,000 over 18 months.
And you have a full-time job.

Could you live on your job income, direct the $162,000 to the two loans (consumer loan first, student loan second) and keep the $320,000 in place? That would preserve the tax-deferred $320k and keep it until you are age 70 1/2 and then start using it, paying only a bit of tax yearly. A you know, the $108000 pension + the SSA will keep you in a fairly high tax bracket so you shoudl avoid breaking into the IRAs while you are working. And just pay the $9600/yr interest on consumer debt (cheaper than fed income tax).
Post Thu Aug 22, 2013 1:49 am
 View user's profile Send private message
ncolello
New Member


Cash: $ 2.05

Posts: 9
Joined: 22 Aug 2013
Location: Hudson Valley
 Reply with quote  

Sorry - the combined monthly net is $9k ($5200 pension and $3800 salary)
Cant make in on just the job income.
Total house payments are $2200 month plus $9k a year in property taxes.
2 kids in college & one in high school.
I have a plan to pay down the credit cards smallest to largest but am really stretching the budget, no vacations, no extras and feel like I am letting the family down. Would like to get out from under this debt and the wife finally cut up her credit cards.

Oldguy - I see that you thought this out well and really appreciate your time and I am sorry I did not explain that the net was both pension & salary. I like how you figures in the income tax consequences.
I like your idea but can not make it on the job salary and dont have a $108k year pension.
Post Thu Aug 22, 2013 2:53 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
I have a plan to pay down the credit cards smallest to largest but am really stretching the budget, no vacations, no extras and feel like I am letting the family down.


$9000/m net - so about a $150,000/yr gross income?
And housing costs of $35,000/yr.
And $320k in IRAs.

Very Happy I was reading just yesterday that after 50 yrs of materialism - cars, starter homes, middle homes, mcmansions - that the youngest members of our society (millenials) are not interested in Keeping Up With The Joneses - they avoid learning to drive, don't get a license when they are 16, use public transport, avoid big energy houses, avoid all things that cause carbon. So the new status marker is NOT big houses & lots of new cars, it is the opposite.

With only $320k in IRAs, I would want to guard them, you may be around for another 30 yrs - you need some investments to protect against 30 yrs of inflation. Keep that $320k growing at about 6% to 8%/yr (ie, doubling every 10 years). So $640k when you're 73, $1.28M when you're 83, and so on - you may want to spend some money on the kids and grandkids. Remember, the pension/SS will be about $82k gross (& taxable), that's quite a bit less than your current $150k/yr - and the house loans are still going to be there (unless you downsize after retirement).

quote:
and max out a Roth IRA to replenish the retirement.


Note: If you take $100k out of an IRA you pay about $35,000 in Fed & State tax, you only have $65k to use for debts.
Post Thu Aug 22, 2013 3:14 pm
 View user's profile Send private message
coaster
Senior Advisor


Cash: $ 1626.30

Posts: 7990
Joined: 11 Oct 2005
Location: Wisconsin
 Reply with quote  

quote:
Originally posted by oldguy
So the new status marker is NOT big houses & lots of new cars, it is the opposite.

Side-topic (sorry); so what's your take on what the new status markers are? My take is big MONEY: big salaries, no debts and huge retirement accounts. At least that's what I'm getting from what we're seeing posted here by that age group.

~Tim~
Post Thu Aug 22, 2013 3:28 pm
 View user's profile Send private message
ncolello
New Member


Cash: $ 2.05

Posts: 9
Joined: 22 Aug 2013
Location: Hudson Valley
oldguy  Reply with quote  

If I take out $70k from the $320k leaving $250k, at 73 its $500k at 83 it is $1mil not counting what I can replenish. Granted not a lot of money by then but I can enjoy the peace of mind now that I am out of debt at a collective cost of $280k in the year 2033.
No starter home , this is it - no new cars other than my wifes 2007 Pilot - no mcmansions - average home for this area of NY, no toys, no mc, no boat, no vacation home. Just living light because my wife does not work f/time and loves directing a church nursery school for $1k a month and volunteering. No complaining, just tired of not being able to take the kids on a vacation once a year. Dont need a lot of cash, have a job car and like to spend $100 a week on golf and a few beers with my friends.
What if I take only $35k this year and the rest next year, it should lessen the tax liability a little.

ps - I do have $15k in stock that would only cost capital gains on $2k if i cash it.

I am not convinced either way and looking at any option anyone may have.

Thanks
Post Fri Aug 23, 2013 1:58 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
Granted not a lot of money by then but I can enjoy the peace of mind now that I am out of debt


You're picking and choosing - your debt is $369,000, in your mind reducing it to $300,000 gives you peace. And you are willng to give up lots of future wealth to lower the debt to $300.000.

The loss is the future gains on the $70,000 - ie, $140k in 10 yrs, $280k in 20 yrs, $560k in 30 yrs. So that's the choice - spend the $70k now to loosen the budget, more vacations, etc - and give up future wealth. It's a personal choice, only you can decide. BTW, you can do anything between those two extremes - eg, cash out $35k and pay down the 18% loans,

One caution - don't pull so much out of the family's future wealth that you saddle your kids with your care 30 yrs from now (besides, you don't want your kids changing your diapers, you want to HIRE a stranger for that, lol)
Post Fri Aug 23, 2013 3:17 pm
 View user's profile Send private message

Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016