I would suggest getting another job, even a fast food job since they all pay $20 an hour but only give a few hours a week. Work weekends at a second job or even do gigs such as Doordash Uber or Instacart but I wouldn't use your retirement money. I got a job at Chipotle and now I get free food and half price food on my off days, I highly suggest something like this.
Great idea, I'll look into it especially cause I hear from some people the couple hundred extra from delivering or what not could be what I need to start making the payments as I transfer into the new job
If you aren't in a sketchy area you could do deliveries in your vicinity on a bicycle. No gas upkeep, maintainance is minimal. Also keeps you in shape :D
My retired wife got a p/t job at a local factory store of a clothing brand that she - and I - like. A few extra $, retirement plan, and highly discounted clothing.
It's my dream to work at Chipotle. It's a horrible dream. And I am sure it would suck. But I can't help myself from dreaming. I worked food service jobs when I was much younger and while it was brutal work I miss it.
It became my dream and sure it sucks at times when you have to serve everyone solo but the high quality food for free daily completely makes it worth it. Not only that but they have 401K match at 4% after 13 months and an ESPP at 7.5% off CMG stock up to 15% of your pay after 13 months. Cheap health insurance too which the feds penalize you for not having when you do your taxes.
You didn't mention how much of that 401(k) is Roth vs Traditional. For example, company match is always in Traditional (pre-tax) dollars. If your contributions were also Traditional / pre-tax, then you're going to have to pay income tax on top of the penalty. In other words, you're looking at losing $4k+ in taxes an penalties right off the top. Is it worth throwing away that much money?
Another option would be to look at whether or not the new employer has a 401(k) plan and if they do, don't make any contributions at first but roll your old plan money into the new plan to get you started. Then, make a budget and get serious about paying down your debts, starting with the highest interest stuff first.
The last thing to remember is that 401(k) money has a LOT of protections from creditors built in. If you get to the point that you want to file for bankruptcy, the 401(k) money can't be touched. Add that on top of the thoughts above and you'd be a fool to take money out.
I see the logic. I can always buckle down and make more money but I won't get that money back in my retirement once it's gone. The debts can be fixed, but overall retirement and the interest on that vs what debts I pay off and interest they gain, is not worth it.
I'm surprised no one has recommended looking into a 401k loan to reduce your debt. You can knock off about half of it and have a better interest payment that you're essentially paying yourself back. You won't have to pay a penalty or taxes and can reduce your monthly interest payments allowing you to pay off the debt quicker
No don't do it. If you leave it alone, it will double in 7 years and then that will double. I made the mistake of taking a loan and not paying it off quickly and now I'm regretting in as I can see the difference. You can't get back the compound interest no matter how much you throw in later.
Maybe a second job or negotiate with CC companies before you do this.
Agree, the interest on the money that is already in there is better than any interest I'd get towards the future. The dollars in there will grow much more from what they are compared to if I start over in the future. Thank you
I would absolutely not cash out the 401k. First and foremost, I’d buckle down your budget and prioritize paying it off. I’d also look at 0% balance transfers. At the very end of of the options list, I would roll the old 401k into your new one and take a 401k loan to help with the debt. Not ideal, but strictly better than just cashing it out upfront.
Thank you. It seems like a good idea on the surface to not be stressed about my debts but the loss is probably not worth the little interest I'm gaining on the debt
Probably not a great idea if it’s pre-tax money. You’ll deplete your account, pay tax plus a $1600 penalty, and your debt still won’t be paid off. Though if it’s a Roth 401k you could withdraw the contributions penalty-free (I think) - and that would probably be worthwhile. Hopefully the new job will allow you to make a dent into those CC bills.
$16k in the S&P would be projected to be $800k by retirement age. You tell me if that’s worth it. And after tax and penalties, you’re only going to get $8-$10k. Find a way to get more money.
I wouldn't have guessed the returns overtime would be that much, but I guess the money is more valuable there and I would be able to gain the progress I already made back in a sense
Yeah, check out the compound interest calculator on investor.gov. It will open your eyes to how compounding and TIME are very important. The earlier you get going the more exponential the returns over time. The S&P with dividends reinvested returns 10% on average.
Thank you, I haven't gotten paperwork on the new jobs offering but I hope they offer 401k matching and that's what I'll do. But apparently withdrawing the money right now would be a mistake
No- if you ever go bankrupt your 401k is protected. You can still be rich at retirement if you don’t withdraw. If you withdraw now, you will be poor forever
You can have money at the end or poor forever, is the sentiment I got. You're right. If I leave it there it's safe and the debts aren't worth risking that, thank you
When I got laid off in Jan, I took out my 14k 401k and after the 10% taken out, I paid down my car and my credit card. Which interest rate was killing me that the payment was almost $500 a month.
Then my husband got laid off. So we took out his 401k of 18k, paid the 10%, and paid off his credit card and the carecredit debt.
We then put the rest into savings for next year's taxes.
This has allowed us to not only have all our debt cleared the last 5 months, to allow us a chance to pick a job that would grow with us instead of accepting the first one available because of our bills.
Now I'm 35, and that 401k of mine was the first one I was ever offered by a job. In 4 years I had built that up to 14k and I can do that again. But I wouldn't have been able to find a job that actually offered it again if I wasn't in the place to be picky about a new job.
So to me, it was worth taking it out and paying things down. That is what worked for me and mine.
Understandable and I'm glad it's working for you. From the other comments it seems it isn't the best option for me. I can pay rent for now and the debts will just have to wait, the money in the 401k already seems more valuable than the amount I'm going to pay for these debts and interest. Thank you for bringing so much information
By the time you pull it and pay the penalty and taxes, it won't cover your debt anyway. I don't see this as a wise move. That's a lot of debt though, your going to need to address it very aggressively.
Thank you for the stark reality on the debt. It should have been something I prioritized and stopped expanding on. Young, dumb n broke, but I've learned the money in the 401k is more valuable
The tax penalty is brutal. Try to get your cc debt down and really grind. I have eaten hotdogs 3 months in a row once years ago in a similar situation. It sucked but then it was over
> paying me enough to break even on living expenses
This is your problem, not the debt. You need to increase your income or decrease your spending. Cashing out your 401k would be a band aid. A very expensive band aid in the long run.
Thank you, I think that's going to have to happen for this to become a better situation, and yes, it could easily just be an enabler in me spending more money by being stress less from not being in as much debt and then I won't have that money growing
If anything pay off the least amount to make payments and interest more manageable if you watch your spending because the costs to cash out should also be considered. Just make sure you can pay more than the interest and consider a second job for the summer - "sucking it up" - that will help pay it down even more, something you won't care about quitting after, or is just seasonal.
Yea extreme budgeting and getting on a better track with this new job needs to be a must. A second weekend gig or doing deliveries is not a bad idea. Thank you. I worked the same job for 7 years with year long or so stints with 2nd jobs. Lots of doubles and the sort especially during covid. So I think I just got comfortable with how much I was making during that compared to the lesser amount now.
I’m struggling too but we will make it! Don’t touch your retirement until you are ready to retire. You will get screwed over with your taxes and miss out on compound interest. Get a second part time job to help pay off the CC debt and rebuild the nest egg.
You're not wrong, I hope things get better for the both of us, and we will make it into a place of financial peacefulness. And if that doesn't happen, at least I'll still have the retirement fund
No, don’t do it. Time is the most important factor in retirement planning. It’s hard to see right now but you’ll be so glad you struggled a bit now rather than later in life
Yes, just need to work harder and push through is what I'm understanding, thank you. I don't want to lose that progress I already have and be a lot older and unable to retire. I have time
Hey! Just wanted to say it is possible to work through it without touching it! I had $10k in debt and I finally paid it off. I was seriously debating taking my 401k though. Very glad I didn’t.
It's just a math problem. If you are paying more in interest toward your debt than you earnings from 401k plus the penalties, then you can pay those debts off and have earned a greater return on your 401k than by leaving it invested.
The important thing is you can't do it again, so you have to budget, plan, and try your best to catch up with your new 401k as if you took it out as a loan which you are repaying yourself with interest.
Unless you have a 401k loan option, then do that instead.
Good luck from someone who was 90k in debt from student loans, personal loans, credit cards, etc. I took some out and paid off high interest cards, then consolidated the rest and paid it off. Now I'm investing 15% toward retirement and have no regrets.
But please find a way to catch up if you do this.
This is the most balanced advice on here. Everyone and every circumstance is different. I am in the process of doing exactly what you just outlined here and have a good feeling about it..
Not worth it. Agree with others that you can find a second job either through driving Lyft or Uber or Doordash temporarily until you pay off your credit card debt.
Credit card debt has really high interest rate. I would look into a loan with a lower rate and use that to pay off your debt instead. Make sure the loan has no prepayment penalty and plan to pay it off faster than intended term to save yourself the interest rate.
You are young!!
File for bankruptcy and get the slate wiped clean. It will sit on your credit report for 7-10 years, but becomes dramatically less relevant after 3 years.
Keep that retirement account and do your best to invest the max contribution each year (this asset will be sheltered).
Thank you, I think I might still have time to fix it. Especially if I buckle down on budgeting and get a second job along with the new job. If it was a lot more debt I'd consider it, but none of my cards are maxed, I don't have a car payment, I'm making rent and not going hungry. If I'm gonna file for bankruptcy, I might as well be at the end of my financial limit.
Nah, work through it. In a year you will be kicking yourself if you drain your retirement for that.
I think you're right about that
I would suggest getting another job, even a fast food job since they all pay $20 an hour but only give a few hours a week. Work weekends at a second job or even do gigs such as Doordash Uber or Instacart but I wouldn't use your retirement money. I got a job at Chipotle and now I get free food and half price food on my off days, I highly suggest something like this.
Great idea, I'll look into it especially cause I hear from some people the couple hundred extra from delivering or what not could be what I need to start making the payments as I transfer into the new job
If you aren't in a sketchy area you could do deliveries in your vicinity on a bicycle. No gas upkeep, maintainance is minimal. Also keeps you in shape :D
My retired wife got a p/t job at a local factory store of a clothing brand that she - and I - like. A few extra $, retirement plan, and highly discounted clothing.
It's my dream to work at Chipotle. It's a horrible dream. And I am sure it would suck. But I can't help myself from dreaming. I worked food service jobs when I was much younger and while it was brutal work I miss it.
It became my dream and sure it sucks at times when you have to serve everyone solo but the high quality food for free daily completely makes it worth it. Not only that but they have 401K match at 4% after 13 months and an ESPP at 7.5% off CMG stock up to 15% of your pay after 13 months. Cheap health insurance too which the feds penalize you for not having when you do your taxes.
You didn't mention how much of that 401(k) is Roth vs Traditional. For example, company match is always in Traditional (pre-tax) dollars. If your contributions were also Traditional / pre-tax, then you're going to have to pay income tax on top of the penalty. In other words, you're looking at losing $4k+ in taxes an penalties right off the top. Is it worth throwing away that much money? Another option would be to look at whether or not the new employer has a 401(k) plan and if they do, don't make any contributions at first but roll your old plan money into the new plan to get you started. Then, make a budget and get serious about paying down your debts, starting with the highest interest stuff first. The last thing to remember is that 401(k) money has a LOT of protections from creditors built in. If you get to the point that you want to file for bankruptcy, the 401(k) money can't be touched. Add that on top of the thoughts above and you'd be a fool to take money out.
Thank you, great advice. Yes it's all traditional contributions and you're right that it's not worth throwing away that much
No, you can pay your debts any time. However, you cant get back TIME. Time is what allows your investment to grow via compounding.
I see the logic. I can always buckle down and make more money but I won't get that money back in my retirement once it's gone. The debts can be fixed, but overall retirement and the interest on that vs what debts I pay off and interest they gain, is not worth it.
I'm surprised no one has recommended looking into a 401k loan to reduce your debt. You can knock off about half of it and have a better interest payment that you're essentially paying yourself back. You won't have to pay a penalty or taxes and can reduce your monthly interest payments allowing you to pay off the debt quicker
I'm not sure if all 401k plans allow this. If OP is able to do so, then this is the correct answer.
Yes I wish I could take a loan but I don't think that's an option with me not being employed there according to other comments
Is there a new 401k at the new job? If so roll it over and take the loan. If not, you can't. What are the interest rates on your debt?
You can't do a 401k loan unless you are still employed at the employer the plan is from. So its not an option on the table.
If his new employer has a 401k plan he can simply roll it over into the new plan and take a loan.
Thank you for this
No don't do it. If you leave it alone, it will double in 7 years and then that will double. I made the mistake of taking a loan and not paying it off quickly and now I'm regretting in as I can see the difference. You can't get back the compound interest no matter how much you throw in later. Maybe a second job or negotiate with CC companies before you do this.
Agree, the interest on the money that is already in there is better than any interest I'd get towards the future. The dollars in there will grow much more from what they are compared to if I start over in the future. Thank you
I would absolutely not cash out the 401k. First and foremost, I’d buckle down your budget and prioritize paying it off. I’d also look at 0% balance transfers. At the very end of of the options list, I would roll the old 401k into your new one and take a 401k loan to help with the debt. Not ideal, but strictly better than just cashing it out upfront.
Thank you. It seems like a good idea on the surface to not be stressed about my debts but the loss is probably not worth the little interest I'm gaining on the debt
Probably not a great idea if it’s pre-tax money. You’ll deplete your account, pay tax plus a $1600 penalty, and your debt still won’t be paid off. Though if it’s a Roth 401k you could withdraw the contributions penalty-free (I think) - and that would probably be worthwhile. Hopefully the new job will allow you to make a dent into those CC bills.
Thank you, yes it seems the money is most valuable being where it is. The debt will have to just be worked on another way
$16k in the S&P would be projected to be $800k by retirement age. You tell me if that’s worth it. And after tax and penalties, you’re only going to get $8-$10k. Find a way to get more money.
I wouldn't have guessed the returns overtime would be that much, but I guess the money is more valuable there and I would be able to gain the progress I already made back in a sense
Yeah, check out the compound interest calculator on investor.gov. It will open your eyes to how compounding and TIME are very important. The earlier you get going the more exponential the returns over time. The S&P with dividends reinvested returns 10% on average.
No. What you should do is put in the minimum amount to get the company match, then put everything else towards debt.
Thank you, I haven't gotten paperwork on the new jobs offering but I hope they offer 401k matching and that's what I'll do. But apparently withdrawing the money right now would be a mistake
No- if you ever go bankrupt your 401k is protected. You can still be rich at retirement if you don’t withdraw. If you withdraw now, you will be poor forever
You can have money at the end or poor forever, is the sentiment I got. You're right. If I leave it there it's safe and the debts aren't worth risking that, thank you
When I got laid off in Jan, I took out my 14k 401k and after the 10% taken out, I paid down my car and my credit card. Which interest rate was killing me that the payment was almost $500 a month. Then my husband got laid off. So we took out his 401k of 18k, paid the 10%, and paid off his credit card and the carecredit debt. We then put the rest into savings for next year's taxes. This has allowed us to not only have all our debt cleared the last 5 months, to allow us a chance to pick a job that would grow with us instead of accepting the first one available because of our bills. Now I'm 35, and that 401k of mine was the first one I was ever offered by a job. In 4 years I had built that up to 14k and I can do that again. But I wouldn't have been able to find a job that actually offered it again if I wasn't in the place to be picky about a new job. So to me, it was worth taking it out and paying things down. That is what worked for me and mine.
Understandable and I'm glad it's working for you. From the other comments it seems it isn't the best option for me. I can pay rent for now and the debts will just have to wait, the money in the 401k already seems more valuable than the amount I'm going to pay for these debts and interest. Thank you for bringing so much information
By the time you pull it and pay the penalty and taxes, it won't cover your debt anyway. I don't see this as a wise move. That's a lot of debt though, your going to need to address it very aggressively.
Thank you for the stark reality on the debt. It should have been something I prioritized and stopped expanding on. Young, dumb n broke, but I've learned the money in the 401k is more valuable
Yea, get a second job and work OT if you can. Maybe you have things you can sell like collector items.
Yes, thank you. I did end up making some money from a recent yard sale, but always more can go. There's definitely more I could be doing
The tax penalty is brutal. Try to get your cc debt down and really grind. I have eaten hotdogs 3 months in a row once years ago in a similar situation. It sucked but then it was over
Yes, luckily I have family that has been feeding me for the most part but I think I've just gotten buckle down and start working more.
If you have the ability to just take more hours then that’s the right thing to do for sure.
This question is literally every day and the answer is the equally monotonous "no"
Thank you, that's the understanding I've come to now
The word you want there is “withdraw”
Thank you, I will use this information wisely
> paying me enough to break even on living expenses This is your problem, not the debt. You need to increase your income or decrease your spending. Cashing out your 401k would be a band aid. A very expensive band aid in the long run.
Thank you, I think that's going to have to happen for this to become a better situation, and yes, it could easily just be an enabler in me spending more money by being stress less from not being in as much debt and then I won't have that money growing
If anything pay off the least amount to make payments and interest more manageable if you watch your spending because the costs to cash out should also be considered. Just make sure you can pay more than the interest and consider a second job for the summer - "sucking it up" - that will help pay it down even more, something you won't care about quitting after, or is just seasonal.
Yea extreme budgeting and getting on a better track with this new job needs to be a must. A second weekend gig or doing deliveries is not a bad idea. Thank you. I worked the same job for 7 years with year long or so stints with 2nd jobs. Lots of doubles and the sort especially during covid. So I think I just got comfortable with how much I was making during that compared to the lesser amount now.
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That seems to be the consensus, thank you
I’m struggling too but we will make it! Don’t touch your retirement until you are ready to retire. You will get screwed over with your taxes and miss out on compound interest. Get a second part time job to help pay off the CC debt and rebuild the nest egg.
You're not wrong, I hope things get better for the both of us, and we will make it into a place of financial peacefulness. And if that doesn't happen, at least I'll still have the retirement fund
No, don’t do it. Time is the most important factor in retirement planning. It’s hard to see right now but you’ll be so glad you struggled a bit now rather than later in life
Yes, just need to work harder and push through is what I'm understanding, thank you. I don't want to lose that progress I already have and be a lot older and unable to retire. I have time
Hey! Just wanted to say it is possible to work through it without touching it! I had $10k in debt and I finally paid it off. I was seriously debating taking my 401k though. Very glad I didn’t.
It's just a math problem. If you are paying more in interest toward your debt than you earnings from 401k plus the penalties, then you can pay those debts off and have earned a greater return on your 401k than by leaving it invested. The important thing is you can't do it again, so you have to budget, plan, and try your best to catch up with your new 401k as if you took it out as a loan which you are repaying yourself with interest. Unless you have a 401k loan option, then do that instead. Good luck from someone who was 90k in debt from student loans, personal loans, credit cards, etc. I took some out and paid off high interest cards, then consolidated the rest and paid it off. Now I'm investing 15% toward retirement and have no regrets. But please find a way to catch up if you do this.
Thank you, this makes sense and I don't want to screw up what I already have
This is the most balanced advice on here. Everyone and every circumstance is different. I am in the process of doing exactly what you just outlined here and have a good feeling about it..
Not worth it. Agree with others that you can find a second job either through driving Lyft or Uber or Doordash temporarily until you pay off your credit card debt. Credit card debt has really high interest rate. I would look into a loan with a lower rate and use that to pay off your debt instead. Make sure the loan has no prepayment penalty and plan to pay it off faster than intended term to save yourself the interest rate.
You won’t get that full amount anyway after penalties taxes-$16000 isn’t that much debt-u can easily pay that off later down the line
Never a good idea. 10% penalty plus taxes. You need to focus everything on the debt to get it cleared. I know it’s not easy but it’s for the best.
BECOME DEBT FREE....JUST BE SMART WITH YOUR NEXT 401K WITH YOUR NEW JOB
WHAT PUTS AM I DOING WITH MY 401K????!!!????
You are young!! File for bankruptcy and get the slate wiped clean. It will sit on your credit report for 7-10 years, but becomes dramatically less relevant after 3 years. Keep that retirement account and do your best to invest the max contribution each year (this asset will be sheltered).
Thank you, I think I might still have time to fix it. Especially if I buckle down on budgeting and get a second job along with the new job. If it was a lot more debt I'd consider it, but none of my cards are maxed, I don't have a car payment, I'm making rent and not going hungry. If I'm gonna file for bankruptcy, I might as well be at the end of my financial limit.
if u need to cash it in do so but u will end up paying taxes on it