Tell me about pulling money out of a 401k

[kadams767]

It's both. Early withdrawals are double-penalized, essentially. 10% penalty, plus it is taxed at the same rate as your ordinary income (federal and state here, by the way).

Are you eligible to take a loan from the 401(k) instead?

[mich1]

From what I understand, you cannot pull money out of a 401k if you are still working at that company as an employee. You may be able a loan from it though. Do you have an IRA you can access?

You will get hit with a 10% penalty and get assessed state and federal taxes on this money on top of your current income. So you'll be taxed on it at the higher rate.

[drloretta]

You'd have to talk to the 401(k) people. The upside to this is that you're paying yourself back the interest, right back into your 401(k). The downside is taxes and immediate repayment if you leave your job before payoff

[mrsfarmer]

Some plans allow the loans, some don't, so start with the 401(k) people for sure.

[lys]

Ditto -- get the 2nd jobs FIRST - and then re-evaluate. There are a good many seasonal jobs available now.
You cannot borrow your way out of debt. Stay away from your 401K.

[Deleted]

One thing I've heard Suze Orman say is that you should avoid taking money from a retirement account at all costs, since you get to keep retirement assets even through bankruptcy.

[SJ]

What are the rates on your debt?

If this is a current 401K, as others have said, it may not even be an option to take out the money.

This should be a very very last resort, and only if you have a clear and finite plan for paying down the debt, plans to replenish retirement, etc.

[mcsangel2]

Is the debt mostly unsecured (credit card) or is it something like student loans (nondischargeable)? Because if it's consumer debt, I would file bankruptcy in a HEARTBEAT, unless one of your has a job that essentially prohibits that. Otherwise, bankruptcy makes sense once you reach the mathematical point when you literally are accumulating more debt due to interest, than you can pay.

ETA: If it's student loans, what are the loan repayment periods? 10 years? 20 years?

[agnes]

This will be unpopular, and I suggest it as an almost last resort, what about stopping contributions? Could that help you in the interim? This would prolly be better than taking anything out of your 401k (if you're even able to do that).

[tacosforlife]

I know nothing about this, but I have two main questions for you:

Have you talked to a bankruptcy attorney? Do you know if pulling money out of the 401k would make a significant dent in your overall debt picture?

I would absolutely consult with a bankruptcy attorney before you do anything. And I would run a lot of numbers on your 401k - figure out both how much it would reduce your debt by, as well as how much you'd have in it in 30 years if you left alone. That should help you make a more informed decision.

[doobeedoo]

I know this is not what you want to hear, but I would not take out money from the 401(k) just to get out of debt. Even when it is a stupid amount. I would cease contributions temporarily, get a second job and funnel all the extra cash into debt repayment and then reevaluate after 3 months to see how much of an impact that makes. If second jobs are going well, I'd begin contributing to the 401(k) again.

I mean, I know you want to work until you die, but most people just don't have that option and when they do, it's not the kind of coin that they'd like to be making. Why set yourself up for that later if you can avoid it?

[agnes]

How much is "a stupid amount" of debt? This could also change my answer.

[iammalcolmx]

People under our plan do hardship withdrawals but they have to qualify. They need to have two 401k loans and they are only good for paying off medical bills and paying for your primary residence.

[agnes]

And this is bad advice, buuuut depending on how much the CC debt is, what state you're in, and your assets (if you have any), you could just stop paying. Let it go to collections and eventually (after several years) will drop off your credit report.

Again, THIS IS BAD ADVICE. And there are so many if's to the equation, but it could be an option.

[iammalcolmx]

Yes loom at your state laws. If the get a judgement against you they will take 25% of your disposable wages until you pay off the debt.

[mich1]

Is the student loan in good standing? Depending upon the interest rate, what I might do is get a forbearance on it for a period of time and depending upon your CC debt, throw all that money and the money from your second jobs at it. What you also might want to consider is dropping your 401k contributions - however, I would not drop them below what the match I could receive on them would be.

What is the interest rate on the $40K in CC debt? If it's high, have you tried doing some transfers to alleviate it?

[tacosforlife]

Please talk to a bankruptcy attorney before you do anything. Good luck.

[kadams767]

How much is in the 401(k)? Would it actually wipe it the entire CC debt, or most of it?

[mcsangel2]

Oct 9, 2015 13:45:27 GMT -5 @majorwife said:

i am hesitant to do anything that would mess up our credit scores which are both actually pretty decent - middle 700s - b/c honestly, i dont have that solid of a marriage and i would hate to tank my credit just to get divorced in a year and be even more fucked.

If you do consider bankruptcy (and I seriously really would in your case) - do it before your score drops anyway due to problems/non payments if your financial situation worsens. It will save you 100 points or more on your credit score.

[badgergrl]

I guess what I would do in these circumstance might also depend on if I really thought I would stay married. Too many potential variables to get or give clear advice on a message board but what is best for you might be different that you and your husband as a unit.

[shamrockshake]

Oct 9, 2015 13:36:50 GMT -5 @majorwife said:

to answer some questions: its mostly CC debt. we both have SLs but they are only a fraction of the consumer debt.

i will look into the 401k stuff. its actually not mine. i have zero benefits at my job, so i dont know all the details of the 401k.

we havent talked about bankruptcy to a lawyer yet.

i was just spitballing ideas for more income outside of a parttime job. a gofundme page is next. lol

Oct 9, 2015 13:45:27 GMT -5 @majorwife said:

i am hesitant to do anything that would mess up our credit scores which are both actually pretty decent - middle 700s - b/c honestly, i dont have that solid of a marriage and i would hate to tank my credit just to get divorced in a year and be even more fucked.

wellllll this is probably hella flameful but if you're serious about potentially divorcing and it was his 401k, I would probably consider it more strongly so that I walked away from the divorce in a better position  :-#

[iheartbanjos]

Oct 9, 2015 15:09:04 GMT -5 shamrockshake said:

Oct 9, 2015 13:36:50 GMT -5 @majorwife said:

to answer some questions: its mostly CC debt. we both have SLs but they are only a fraction of the consumer debt.

i will look into the 401k stuff. its actually not mine. i have zero benefits at my job, so i dont know all the details of the 401k.

we havent talked about bankruptcy to a lawyer yet.

i was just spitballing ideas for more income outside of a parttime job. a gofundme page is next. lol

Oct 9, 2015 13:45:27 GMT -5 @majorwife said:

i am hesitant to do anything that would mess up our credit scores which are both actually pretty decent - middle 700s - b/c honestly, i dont have that solid of a marriage and i would hate to tank my credit just to get divorced in a year and be even more fucked.

wellllll this is probably hella flameful but if you're serious about potentially divorcing and it was his 401k, I would probably consider it more strongly so that I walked away from the divorce in a better position  :-#

As much as I hate to say it, this is excellent advice.

Also, I am pretty much the lone DR fan on the board.  DR's rule regarding withdrawing money from a retirement account is only to avoid bankruptcy or foreclosure.  Are you facing either of those?

H always says that if we were ever in financial trouble, he would do Lyft or Uber.  Is that a possibility for part time work?  We always talk to the drivers, and everyone seems to love it.

[aurora]

I know "get another job" is easier said than done, and I'm sure $40k in CC debt can feel overwhelming, but with two of you working if you can each make another $10k/year (~$200/week) you'll pay it off in 2-3 years depending on the interest rates. This is not an insurmountable amount.

However, my opinion/advice does change significantly based on whether you think you can work together as a team to pay off the debt vs. if you think one of you will be constantly dragging the other down.

I'm sorry you're having a rough time.

[agnes]

Do you have a current plan on how to tackle this debt besides bringing in more income? Are you guys still using the credit cards?

I also agree with shamrockshake.

[Pom]

When we were first married we were $55k in debt, plus a mortgage, plus his SL's, plus rent since we moved out of state right away for his career. It was a total clusterfuck. We snowballed baby. We rented out the house long distance (that sucked). We didn't deprive ourselves of everything, but Mr. P started making great money...not immediately, but it increased slowly and that added up with overtime and bonuses. We continued to live below our means, shifted debt to lower interest offers (we had great credit amazingly enough), consolidated and threw every extra penny at it. It sounds like your credit is still in good shape so that's very positive.

I'd commit to a decision about you guys tackling this together (or not, no judgement) and try to avoid bankruptcy and the 401k loan if possible. I don't agree with everything Dave Ramsey says, but in this case, read all you can about cleaning up a financial mess. That's what we did and I spent a ton of time here. We did a complete 180 within 5 years, even to the point of catching up on retirement by our 10th anniversary before ages 44/45. Again, we were extremely fortunate AND worked hard to get here. It sounds like you guys have the tools that you can too.

[Poppy]

Oct 9, 2015 15:09:04 GMT -5 shamrockshake said:

wellllll this is probably hella flameful but if you're serious about potentially divorcing and it was his 401k, I would probably consider it more strongly so that I walked away from the divorce in a better position  :-#

This sounds like it may be in your best interest, but you should check into it. I thought retirement accounts could be split in a divorce. So it may still be best to find the solution that works better for you as a team.

Another note, if you're considering bankruptcy, divorces are expensive and you may have a hard time financing that after a bankruptcy with crappy credit. Also, I'm not sure if he is the spender but dragging out divorce may be a bad move financially. IDK, there are a lot of factors.

[agnes]

How far down does a bankruptcy cause your credit score to go?

[mcsangel2]

About 200 points down, I think.

[salejolie]

Right now I'm using a site called undebt.it (that's what it really is, not trying to do the funky period thing) to track my consumer debt. You enter in your credit card details (apr, balance, due date) as well as how much you can contribute monthly to pay down. Then it goes over how much you would save on the different ways to attack the debt (snowball, avalanche, or a hybrid).

It's been helpful for me to see the whole picture and the timeline. If you have decent credit I would say go for a card with 0% apr for balance transfers then focus on paying that down first before the grace period expires. I know Citi has a few products like this, and they seem to be pretty reasonable if you need to call and get a CLI.

One note about the balance transfer option though: you cannot transfer with the same company. Like if you have Citi, you cannot transfer another Citi balance.