tomas
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| 401k advice |
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Hello everyone,
I'm new to this forum and need some advice on whether I should withdraw from my 401k. Here is my situation. 34, married, and about 10,000 in cc debt. Just started a new job and thinking about cashing out my 401k instead of rolling it over to pay off my debt. I already have enrolled in my new company's 401k program. They match 100% up to 2500.00. Plus I was giving shares in the company up front. Currently my 401 balance is around 14,000. I know I'll be taxed around 4,000 for the early withdraw, Just wanted some advice on whether it would be a good idea or not. I just figure if it can pay off my debt I'll be able to actually save some money. Please respond. Thanks
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Mon Dec 05, 2005 3:13 am |
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Andrew
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Tomas, there is debate about the best course, and if you stick to a regular plan you can compare the net differences between the two. I'm not a financial professional, but I would lean towards keeping the 401k and paying off the debt on an accelerated (if possible) repayment schedule. Think of it this way, you saved some cash, which was great, and borrowed some cash which is now a liability. It would be "easy" to repay the debt with your nestegg, but in addition to no debt leaves you with no savings. On the other hand, if you leave your retirement account alone, and commit yourself to paying off the debt as fast as possible, you will have disciplined yourself to both budgeting and avoiding more debt, be debt free and still have your 401k. Good luck with it!
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Tue Dec 06, 2005 3:17 am |
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tomas
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Thanks for the advice Andrew. I know it's in my best interest to not touch my 401k, it just seem like an easy way to get out of this debt. I have alot to think about. Do you know how I could find out exactly how much I would be taxed if I did infact cash out my 401k?
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Wed Dec 07, 2005 4:00 am |
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Andrew
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You'll be taxed ultimately by your tax bracket. And remember that your $14K of 401k money, as income, could possibly bump you to a higher bracket depending on your situation. And don't forget the early withdrawal penalty which will further reduce your cash in hand.
I've been tempted like you to do the same, but I didn't cash out, and even though there is still some debt to kill, I'm glad I didn't.
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Wed Dec 07, 2005 5:08 am |
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debtfree4life
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| DEBT VS ASSETS |
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I know exactly what you are going thru and here's the game plan that i did and it worked. First make a list of all of your debt (i know its depressing). Second take the smallest debt you have and get a loan out of your 401k and pay that debt off. next call all the rest of your cc's and get them to lower your rates (tell them if they don't that you will drop them as a card holder) don't worry most of them will give you lower rates. take the next largest debt and start paying that one off while still maintaining your minmum monthly payments on the rest until its paid off
when you finish that one take the money you were paying on that cc and add it to the next min monthly payment you are making. do this till you are debt free.
most will tell you to take the largest debt but the problem with that is as you are paying that off the smaller one keep getting bigger. so start with the small debt first plus your credit rating will increase as you do this. When you pay the first cc off KEEP IT. Use it for emergencies (your car breaks down and you dont have the money to fix it) once you pay it off also ask for an increase. This will help your credit as well. DON'T KILL YOUR 401K the money its earning is tax free plus the compound intrest on the money. If you kill it you kill your money tree plus pay taxes (35%+) ouch that is alot to pay just because of your debt.
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Fri Dec 30, 2005 7:03 pm |
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Rolo
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| Re: 401k advice |
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quote:
Originally posted by tomas
I just figure if it can pay off my debt I'll be able to actually save some money.
You mean..."save some money"...to get back to where you were before you cashed out your 401(k)?
Get a debt consolidation service, such as genus.org. Keep your 401(k) intact...you will never be able to recoup that lost opportunity...it's like virginity...once you bust it, you can't go back!
"Expect me when you see me."
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Fri Dec 30, 2005 11:13 pm |
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