Dave1216
First Time Poster
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Joined: 02 Aug 2012
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| 401k dilemma |
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I need a little financial advice regarding my 401K. I have $32,000 in 401k loans totaling $200/week in payroll deductions. My 401k has a balance of $95,000. I have about $60,000 in non-deductible interest loans including credit cards and student loans. I am currently not making contributions into my 401k other than loan repayments. My monthly payments to these other loans plus my 401k loans total more than $3,100. Should I cash out my 401k to be debt free and start recontributing next year? I am 45 years old. Or should I weather the storm and take about 5 years to pay everything off? If I cashed it in, I would wait until January to delay the taxes for a year. My credit score is 720 so as of now I'm not considered a credit risk.
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Thu Aug 02, 2012 6:52 pm |
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littleroc02us
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Not a good idea to cash out a 401k because right off the top the gov't will take at least 10% and then when it comes to tax season the gov't will get another 25% or whatever your tax bracket is. The only reason you would ever cash out a 401k is to avoid bankruptcy.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Thu Aug 02, 2012 9:25 pm |
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oldguy
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Location: arizona
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The Stste & Fed tax bill plus the 10% fine is about $38,000. So you would get about $57,000. You would be required to first pay the $32,000 loan first, that leaves $25,000 available to pay on the $60,000 credit card loans, leaving you with $35,000 in high interest loans (and no 401k). So, that won't help you much. In addition, you would be starting over with nothing at age 45.
A better answer (IMO) is to keep paying that $37,200/yr that you are now paying - that should take you thru the $92,000 debt in about 2.5 to 3 yrs. Plus you will still have the $95,000 401k account. And you will be accustomed to setting aside $3100/m - that wiould really bump up your 401k in about 15 years. (a $558,000 input - if you invest it at 11%/yr that's $1,400,000 in addition to the $95,000).
It's probably a surprise to you how powerful compounding is - and that it is not nearly as difficult to save a million dollars as most people seem to make it. (I blame our failed education establishment - lol).
The good news is that you have a very solid income stream - it takes a fairly high income to qualify for loans with a $37,200/yr payment - and that doesn't count your shelter/car/etc.
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Thu Aug 02, 2012 9:59 pm |
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clydewolf
Senior Member
Cash: $ 50.25
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Joined: 27 May 2012
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| Re: 401k dilemma |
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quote:
Originally posted by Dave1216
Should I cash out my 401k to be debt free and start re-contributing next year?
Dave1216,
I know you are still working for the 401k sponsor, because you have the loan.
For most 401k plans, you can not have a loan and not work for the employer that sponsors the 401k.
And while you are employed by the 401k sponsor, you can not take cash out of the 401k except for loans, and hardship situations as defined in the Summary Plan Description for the 401k.
Do as Oldguy suggested, stay with your current payment schedule. As the debts are paid, switch that payment to your 401k contributions.
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Fri Aug 03, 2012 3:16 pm |
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