I see all over the internet people mentioning cashing in their 401k early to pay off debt. I just tried to do that exact same thing, yet according to my representative, (who put me on hold to verify with someone else) there is not one single legal way I can cash in my 401k early without qualifying for a Hardship Withdrawal and providing proof from a very limited list of acceptable documents for them to investigate.
Which is the truth here: Have people closed out their 401k early to pay off debt, or is there no legal way to do so?
2007-09-04 04:12:48 · 8 answers · asked by Jen 1 in Business & Finance ➔ Personal Finance
Are these people cashing in their 401k early, people who are older and retired? As Plea_of_insanity states, there is no legal way to withdraw from your plan (while still employed) unless you qualify for the Hardship withdrawal or take a loan on your 401k.
BTW Plea_of_insanity, you tricky tricky man. Asking questions you already know the answer to! Tsk Tsk! ;P I wondered why you looked familiar...
2007-09-04 07:07:13 · answer #1 · answered by christyn79 5 · 0⤊ 0⤋
you do not qualify for a hassle withdrawal. you won't manage to roll it over to a sparkling enterprise. once you pay off the $3 own loan, you should request a "direct distribution". you pays 10% penalty and 20% needed fed tax withholding. I additionally think of that some plans require you to pay decrease back loans in case you go away the hire of that enterprise. you are able to desire to discover a miles better thank you to funds the money you have coming in. in the experience that your earnings covers in basic terms the loan and utility expenses, then you certainly are definetly not making adequate funds. A 2d interest is your in basic terms answer. It become advantageous for spouse to be stay-at-living house mom for 5 years, yet now it's time to circulate decrease back to artwork. in the experience which you funds it in and don't make alterations on your earnings and funds administration, you would be dealing with the comparable difficulty returned very quickly. At your next interest, do not make contributions to the 401K until once you have all your credit playing cards paid off and you have that 2d motor vehicle.
2016-11-14 04:07:57 · answer #2 · answered by ? 4 · 0⤊ 0⤋
It depends on the particular plan of the company you work for. See what the rule are for a hardship withdrawal. The other people you see mentioning taking money out might have qualified for that under their company's plan. Unless you qualify, you can't take it out.
2007-09-04 04:24:47 · answer #3 · answered by Judy 7 · 1⤊ 0⤋
I would aviod this if you could. You will pay at least a 10% penalty to the IRS for withdrawaling plus the amount of money taken will be subject to tax. Remember, you did not pay taxes on your 401k contributions.
2007-09-05 13:13:20 · answer #4 · answered by Gary 5 · 0⤊ 0⤋
It sounds like you are still working for the employer sponsoring the 401(k) plan. If so, then your representative is correct; the only way to cash out while still employed for them is to qualify for a hardship withdrawal.
After you stop working for that employer, however, you are permitted to cash out your assets in the plan.
2007-09-04 04:47:13 · answer #5 · answered by Plea_of_insanity 5 · 1⤊ 0⤋
I would try anything possible to not do this. Aside from the fees, taxes, and penalties you will pay, you will be sacrificing a lot of long term wealth to pay off debt today. If you can find another way to pay off the debt, you will be in much much better shape.
2007-09-04 05:21:55 · answer #6 · answered by Jay P 7 · 0⤊ 0⤋
Yes they are telling you the truth - I did it - and did they also tell you that there is a big penalty to pay? I forget the percentage but mine was $7,000 - I would recommend any other means if at all possible
2007-09-04 04:21:17 · answer #7 · answered by Anonymous · 0⤊ 0⤋
Most plans will let you cash out only if you separate from service (ie. quit or be fired).
2007-09-04 06:19:05 · answer #8 · answered by Wayne Z 7 · 1⤊ 0⤋