Ok here is the situation. My sister-in-law wants to get a divorce but has no $$ to get out on her own. She wants to go to a bank and get a loan using her 401K (or whatever retirement account she has) as collateral. She has about 10k in the account. Is this possible? She does NOT want to withdraw from the account because I have told her that she will get hit with big fees and loose much $$ in the process. Ideas, comments, suggestions appreciated.
2006-09-03 15:53:00 · 6 answers · asked by frozenfun 2 in Business & Finance ➔ Personal Finance
Oh yea...one more thing. She does not work for the company any longer....
2006-09-03 15:58:45 · update #1
It depends on your 401K plan. Most plans allow for borrowing of up to 50% of the balance you have in the plan... You pay it back to your 401K with interest, but the interest is deposited to your account as well, since you are effectively borrowing from yourself.
2006-09-03 15:55:53 · answer #1 · answered by boj12345 2 · 1⤊ 0⤋
David B above is mostly correct. Not all plans allow borrowing in quite that style. They will loan you the money, however they will charge you the interest rather than letting you pay intrest into your account. It depends on the rules of the plan and the policies of the administrator. But in a nut shell reguardless of the in's and out's you can in most plans take 50% of the account value. So if she has 10k she will be able to take out 5K and will be required to repay in 5 years. If she is not working for the company any longer, this may complicate the issue. Yes the tax and penelty can be heavy. However paying the bribe to the tax man is one route to go. After the fees are paid, its your money and no repayment is due. Even though this is an expensive way to go, the long term result is that you don't have a monthly payment to make. When your starting over, not having another bill to pay carries some weight. You should consider paying the tax (bribe) and getting on with life. It will not be easy any way you go. Your best bet in my not too humble opinion is pay the price and walk away with whats left and start over. Open a ROTH and when you are on you feet make payments to the roth. If your 50 years of age or over, I would consider a traditional IRA instead of the ROTH.
The last option is not a very pleasant one at first. In the long run however it has its charm. Live like a church mouse and don't touch your 401K. Just learn to do without. Do without a phone for a while. Do without internet service for a while. Cut some corners. It wont be fun. But in a couple of years, it will just be a memory and you will still have your 401k.
2006-09-03 23:17:43 · answer #2 · answered by john d 3 · 0⤊ 0⤋
if she no longer works for the company, then odds are she cannot take a loan. She can however take a taxable distribution if she is under age 59 1/2 or roll into her current 401 k and take a loan from there if the plan allows it. All depends on how soon she needs the money, taking the distribution may be the fastest way to get the dough.
2006-09-03 23:53:17 · answer #3 · answered by Anonymous · 0⤊ 0⤋
you can't borrow against the 401K because she does not work for the company anymore. Withdrawing from the account means she will lose about 40% of the money to taxes. Tell her to get a second job to pay for it.
2006-09-04 02:44:12 · answer #4 · answered by Steve R 6 · 0⤊ 0⤋
You can borrow againest it but yes there is a fee but they'd allow it in her situation make sure she gets her husband off of the 401K cause if something happens to her it goes to her husband believe me I know this he'll be rich no doubt.Good Luck
2006-09-03 23:00:03 · answer #5 · answered by sugarbdp1 6 · 0⤊ 0⤋
she could charge it on a credit card, and after the divorce settlement if there is property that has to be sold, she could pay the card off.
2006-09-03 23:07:10 · answer #6 · answered by Grandpa Shark 7 · 0⤊ 0⤋