Comments on: When Can I Take Money Out of My 401k? http://www.personalfinanceanalyst.com/when-can-i-take-money-out-of-my-401k/ A Personal Finance Blog dedicated to taking the mystery out of money and helping you to live a happier, more successful life. Thu, 29 Jul 2010 02:30:00 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Flavius Maximus http://www.personalfinanceanalyst.com/when-can-i-take-money-out-of-my-401k/comment-page-1/#comment-23533 Flavius Maximus Thu, 29 Jul 2010 02:30:00 +0000 http://www.personalfinanceanalyst.com/?p=1944#comment-23533 Over the years I have come to disagree with conventional wisdom on taking money out of a 401k plan and on the value of the 401k in general. This article has what I consider to be a common flaw in its accounting. When removing money from a 401k that has been put in as pre-tax dollars, taxes will be paid, this is true. But this is irrelevant. If you use non-401k money to pay of the same debt, you must pay the same taxes on that money as well. So the tax issue is meaningless. Thus the real issue is the 10% penalty paid. Consider however that most Credit Cards are taking well over 10% and you can see that it is in fact a good idea to pay off CC debt with 401k money. As I see them, there are really only two benefits to a 401k. First is an employer matching. Second is it is a form of forced saving. Most people I know cannot save unless they never see the money. But there are better ways to force yourself to save and any company match is only a one time thing and even that is not yours till you have worked for typically five years of more. But the article does hit the real problem on the head. With 150K/year income, there is little reason for this couple to be in debt unless there is no planning put into spending and saving. This is a common problem for people. This article offers the best advice in the end which is: create a plan to save and pay off the debt, then work to the plan. Thus the real risk to using 401k money to pay off Credit Card debt is not that you will be paying 10% on your money, because some simple math can be used to tell you if your current rates make the deal a good one of a bad one. The real risk is that after you have paid off the debt, the consumer will not change their spending and saving habits which means in a year of two they will be back to having the same debt, but no more 401k savings. Hail Flavius! Over the years I have come to disagree with conventional wisdom on taking money out of a 401k plan and on the value of the 401k in general. This article has what I consider to be a common flaw in its accounting. When removing money from a 401k that has been put in as pre-tax dollars, taxes will be paid, this is true. But this is irrelevant. If you use non-401k money to pay of the same debt, you must pay the same taxes on that money as well. So the tax issue is meaningless. Thus the real issue is the 10% penalty paid. Consider however that most Credit Cards are taking well over 10% and you can see that it is in fact a good idea to pay off CC debt with 401k money.

As I see them, there are really only two benefits to a 401k. First is an employer matching. Second is it is a form of forced saving. Most people I know cannot save unless they never see the money. But there are better ways to force yourself to save and any company match is only a one time thing and even that is not yours till you have worked for typically five years of more.

But the article does hit the real problem on the head. With 150K/year income, there is little reason for this couple to be in debt unless there is no planning put into spending and saving. This is a common problem for people. This article offers the best advice in the end which is: create a plan to save and pay off the debt, then work to the plan.

Thus the real risk to using 401k money to pay off Credit Card debt is not that you will be paying 10% on your money, because some simple math can be used to tell you if your current rates make the deal a good one of a bad one. The real risk is that after you have paid off the debt, the consumer will not change their spending and saving habits which means in a year of two they will be back to having the same debt, but no more 401k savings.

Hail Flavius!

]]> By: Joyce http://www.personalfinanceanalyst.com/when-can-i-take-money-out-of-my-401k/comment-page-1/#comment-21003 Joyce Fri, 09 Apr 2010 14:40:33 +0000 http://www.personalfinanceanalyst.com/?p=1944#comment-21003 I am 62 and would like to take money out of my 401K to pay off all my credit cards. This would also free me up to be able to pay an additional amount to my mortgage so that is is paid off in 3 1/2 years. This appears to me to be the best way to be debt free and house all paid for when I retire. Can you offer any advice? Is there a better way to do this? Thanks, Joyce. I am 62 and would like to take money out of my 401K to pay off all my credit cards. This would also free me up to be able to pay an additional amount to my mortgage so that is is paid off in 3 1/2 years. This appears to me to be the best way to be debt free and house all paid for when I retire. Can you offer any advice? Is there a better way to do this?
Thanks, Joyce.

]]> By: David R. Lampsen http://www.personalfinanceanalyst.com/when-can-i-take-money-out-of-my-401k/comment-page-1/#comment-18392 David R. Lampsen Sat, 12 Dec 2009 14:03:41 +0000 http://www.personalfinanceanalyst.com/?p=1944#comment-18392 You should be able to take money out. The real question is whether or not you want to finance those legal fees by doing so. Talk with the folks running the 401k and your accountant. Seek out any superior alternatives, too. Whether it's in a mattress or a 401k, it's your money. It's just a matter of managing it the right way. Best of luck on the adoption! DRL You should be able to take money out. The real question is whether or not you want to finance those legal fees by doing so. Talk with the folks running the 401k and your accountant. Seek out any superior alternatives, too. Whether it’s in a mattress or a 401k, it’s your money. It’s just a matter of managing it the right way. Best of luck on the adoption!

DRL

]]> By: Mary http://www.personalfinanceanalyst.com/when-can-i-take-money-out-of-my-401k/comment-page-1/#comment-16728 Mary Wed, 21 Oct 2009 19:06:21 +0000 http://www.personalfinanceanalyst.com/?p=1944#comment-16728 My husband and I are adopting our granddaughter - there are serious legal fees. Can I get my money out to help with this? My husband and I are adopting our granddaughter – there are serious legal fees. Can I get my money out to help with this?

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