No Income. Should I cash in my 401K to pay my bills?

Question

We're not in debt, but we've got a huge lack of income over the next 5 months. I've got 2 jobs and I'm going to school full time -- so I've got as much income coming in that I can get.

However, we still won't have enough to live month to month.

We don't do credit cards or bank loans -- we've got no credit nor any desire to go into debt that way.

But, we do have a 401K with approx. $11,000 in it.

I know all about the potential money that we will lose over the years, but we don't really have any other way to get any income.

Thoughts?

The 401k is at a job that my wife is leaving today. She is interning for school and staying at home with our daughter while I work at night. She will have no income and cannot borrow against it due to no longer being an employee.

Answer 1

take a loan from your 401k, you won't incur the 10% penalty and you can pay it back when your cash situation improves. This should pretty much be a last resort though. Are you a homeowner? Consider an equity loan.

Answer 2

I believe there is a huge penalty in taking out your 401K early. (like 30% in taxes, because you put it in there tax-free.) It's like giving up a lot of that money that you worked so hard to put in your 401K account. For example, if you needed $5000, you have to pull out $1500 more to hand over to the government for fees and taxes.

I would reconsider taking out a loan or look into a government grant or loan for school. (your school should help you do this, ask their financial counselors.) A government loan can be as low as 5.25%, and it can be deferred to start paying on it til you're out of school. Even a $5000 loan from a bank with 8% is only $5400 to pay back. It's just seems smarter, not working harder.

Also if what you are making is below the poverty line, look into government assistance, ie food stamps, Medicare for insurance to help you out in for a little while. It could cut your essential costs down.

Answer 3

Avoid depleting your 401(k) - the taxes and penalties will cut the gross by about 1/2, meaning you'll only get about $6500 out. It's not really worth it.

As a full-time student, you should look into grants, student loans, and work-study programs at school. I know you don't like the idea of loans, but student loans generally have lower interest rates and are a pretty good deal. Typically, payments are defered until 6 months after you graduate. By then, you should have a decent job and be able to start paying them back. If not, you can also get hardship deferrals. Also, many programs now offer student loan repayment or cancellation for things such as joining the Peace Corps or Americorps, or teaching in urban schools for two years.

HTH. Best wishes.

Answer 4

If it is possible for you to take a loan on the 401(k), do that. Just remember that if you are having trouble making the monthly expenses now, you will have another expense of the loan repayment. (I have done this several times to get out of tight situations)

If you don't think you will be able to make the repayments, consider a withdrawal. You don't have to close the account, but will incur a tax penalty.

Hopefully, you are still contributing to the 401(k), so that it will continue to grow. (Provided you have a good plan, and it is in good funds)

Take a good, hard look at your budget. You probably can make some sacrifices now to benefit your future.

Go to Oprah's web site www.oprah.com and check out the debt diet. I know that you state you have no credit, but you might find some ways to cut your expenses.

Good luck.

Answer 5

Apply for a Hardship Loan against your 401k. It's a one time loan and the penalities are minimal compared to not filing for it. It's worth looking into. And what is money, if you can't enjoy life now? My mom saved and skrimped, borrowed from Peter to pay Paul and shopped at garage sales to clothes us 6 rugrats and 1 month after she was old enough to retire...65, she collasped from a massive heart attack(after a clean bill of health from the Dr. office, 2 days prior) and never got to enjoy that money that she struggled to collect over the years.Check into it.

Answer 6

r there other spendings taking away your money quicker than u would like it to go? shopping malls, gadgets, accessories, things that u just want and don't really need at this point, if u cash in on your 401K plan how soon will u blow that, and then there will be nothing left. i say don't cash in, u'll be happy u didn't and if u believe in God, He will provide for u, He's taken care of people in much worse situations. Just pray that He'll provide a way of income for you and if u believe and keep the faith, it will happen

Answer 7

Take out a loan against your 401K, this is done thru your employer. It saves you from losing the money and you pay it back directly from your check, just like a regular deduction.

Answer 8

If you cash it you are going to be raped with taxes and penalty unless you are cashing it for one of the penalty excluded reasons. Check the exclusions list!! Another thought is to take a loan from it and thereby it is not taxable nor is it penalized. You will be paying yourself back. Remember that once it is gone it is gone. I have been trying to impress that on my wife over time without much luck as she wants to spend it now, now, now.

Answer 9

lower your standard of living. brownbag your lunch, get a cheaper car. 11,000 will be gone in no time, then you have absoulutly nothing. find another way. you say we. what is the other half doing. it takes two to make it and spend it. see what you can do without for now until you are making enough money to afford those things. live a little simpler. its not as bad as you think. go for a walk instead of a movie. have a at home picnic instead of going out to eat. give it a try. can be fun. good luck.

Answer 10

Keep the 401K. Contact your creditors and explain your problem. Often they will make you a better deal. You say "WE" what is possibility of the other half of "WE" getting some income?