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Withdrawal from 401k

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Money Talk > Retirement Planning

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Withdrawal from 401k  Reply with quote  

I am very close to getting a new job. The new job will be about a 30% higher base pay, and commissions should make it much higher in the future.
I currently have a 401k with my current employer, and it only contains about $3,000. I want to withdrawal this full amount so that I can use the money to purchase a new car. I do not have a current vehicle because I have full use of a company car with current employer. New employer will also give me a car allowance. However, I do not have any money to put down on a new car loan.
I am 46, and want to know how much of a hit I will take on this withdrawal and any other advice that would seem relevant.
Post Tue Mar 28, 2017 8:35 pm
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Generally, the advice is to avoid breaking into a 401k. Here's why - assuming a marginal Fed Tax rate of 22%, a State Income Tax of 5%, and the 10% penalty for withdrawing prior to age 59 1/2 , the net will be only about $1900. Conversely, if you leave your $3000 invested, and invest it in a common 401k SP500 Index Fund at 11%/yr, the $3000 will be roughly $22,000 when you are age 65.

I would buy the new car with zero down. (In fact I did, I have a 2017 Toyota, I financed the entire cost - car, tax, title, etc). If you used your 401k $1900 for a down payment, it would lower the payments by about $34/m. I would pay the extra $34/m to stay on track to build the extra $22,000.

Congratulations on the new job.
Post Tue Mar 28, 2017 10:48 pm
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