Comments on: Should you use your 401(k) money to pay off your debt?

By: TurboTaxLisa

TurboTaxLisa — Mon, 16 Jul 2012 19:09:46 +0000

Hi Cecilia,
I love your feedback. I was going to blog about this. I have done this and also recommended this for clients. This strategy definitely works.
Thank you again for your feedback!
Lisa Greene-Lewis
http://blog.turbotax.intuit.com

By: Cecilia

Cecilia — Fri, 13 Jul 2012 06:06:44 +0000

Pay off the debt first. Interest rates on savings are pcihettaally low. In the long run, you will save more money by paying off the debt and not spending it on interest fees. One way to get your debt under control is to focus on one card and pay it off. Then once it is paid off, take that money and increase another card’s payment by that amount until it is paid off. By paying off your debt, it will increase your credit rating and in the future you will get better interests rates on other loans, such as car and house. That can save you hundreds a month.References :

By: Matt

Matt — Tue, 12 Jun 2012 17:15:17 +0000

I guess I look at this differently – everyone complains that the taxes are horrible, but you would have paid them if you didnt contribute, and you will pay them when you withdraw anyway regardless of age. The only time that you could screw yourself here is if the withdraw bumps you into another tax bracket.

So really all there is to discuss here is the 10% early withdraw penalty. If that is worth the piece of mind to you to get out of debt I say GO FOR IT.

All these returns of 8-12% a year have not been happening for most since 2007 – and inflation is gobbling up any gains below that you are getting.

I hesitate to listen to the financial advisors as they have a vested interest in you staying.

The real keys here are this: does/did your employer match contributions? and are you a conscientious enough person to save/invest elsewhere?

If you are/ were matched dollar for dollar – put that much in at least – even if you want to take it out EVERY year – you will still come out ahead (based on your tax bracket)

If you have ANY debt that is drawing interest above 5% or so that you cannot cashflow until gone within a few years – pay it off.

The investment and retirement planning that we are being fed by these fast food investment planners is not accurate – they sell you what they are taught to sell you – THINK FOR YOURSELF

By: Patrick

Patrick — Thu, 23 Feb 2012 02:12:57 +0000

I recently got married. I took out a loan on my 401k to pay $10,000 for the wedding, reception, etc. I “paid myself back” at 4% interest for a few months while we planned the wedding. Using the wedding gifts and funds collected from the guests, I then immediately paid back the loan. It worked out great!

By: Debt Relief Programs

Debt Relief Programs — Wed, 06 Apr 2011 18:58:23 +0000

I do agree, Until Debt… If people aren’t on the same page, the battle is over before it starts. It can indeed be tough, but it is well worth it!

Thanks for this post.

By: james

james — Thu, 27 Jan 2011 19:54:39 +0000

I agree with you 100%. However, Many people lost job during the recession and ended up breaking 401(k),just to keep up with mortgage and bills, and to supply daily bread onto the dinner table to feed their family and children. What would you do if you are in this situation when your last cash is all dried out and no other income source is to be seen?

By: ttime

ttime — Thu, 27 Jan 2011 19:44:24 +0000

Kikster, no offense, but you’re living under a rock if you think retirement funds aren’t up for grabs during a divorce. That money is NOT yours and yours alone. I know the hard way. That being said, I strongly doubt a judge would decide how debt would be settled (i.e., via retirement funds). He’s only going to decide who gets what assets and who gets what debt.

By: HR Expert

HR Expert — Thu, 27 Jan 2011 18:46:42 +0000

Hi Kevin,

If I were you I would pay a little visit to my HR department and get some additional clarification. My experience as an HR professional is that your spouse does have access to your 401K and if you should divorce you will have to give up 1/2, but sometimes it does depend on the laws of your state. So don’t be fooled

By: Kikster

Kikster — Thu, 27 Jan 2011 16:51:05 +0000

kevin karstetter – I’m pretty sure that a spouse can NOT touch ANY of your retirement in a divorce. That money is considered yours and yours alone! During a bankruptcy you can’t even be forced to use your retirement to pay off the debt.

By: wingfan

wingfan — Thu, 27 Jan 2011 16:07:49 +0000

I have taken two loans from my 401k and have paid them both off through my payroll deductions.

By: Tired of Paying Taxes

Tired of Paying Taxes — Thu, 27 Jan 2011 16:05:24 +0000

I had to withdraw from my 401K to pay our taxes.

By: Pattt

Pattt — Thu, 27 Jan 2011 15:42:25 +0000

My husband changed jobs in early 2008 and needed to do something with his 401k. I suggested rolling it into a bank cd until he was at his new job long enough to start a 401k. He chose to cash it out to pay for some home repairs. BAD IDEA. The penalty for cashing it out early was very bad. And even worse we were taxed on it next year when we filed. We ended up with almost half it’s value. Before doing anything, ask a tax consultant what you will be up against.

By: Angie M

Angie M — Thu, 27 Jan 2011 15:34:51 +0000

It is no one’s business how people use their 401K’s. We used ours to pay off some debt and it helped us alot. The banks were not willing to help and if they were we could not afford the intersest rate on any loan. Our money goes right back where we took it out and we watch it close and would do it again. Americans have to look arter themselves.

By: Cyn

Cyn — Thu, 27 Jan 2011 15:15:23 +0000

Laid off-We had to take the 401(k) payoff or lose our house. Three months of emergency fund helped the first three months but not the six months after that. We of course were penalized and had to pay tax on it, but we had no recourse. We could not sell our house for what we paid for it. Now, we have sold our house and have a new job and are steadily contributing to a TSP and IRA’s and have six months of emergency fund. We will never catch up before retirement, but we are doing the best we can.

By: JudyTTexas

JudyTTexas — Thu, 27 Jan 2011 12:19:52 +0000

I was forced to move from my prior location due to the crime rate escalating. When the drug addict/dealer moved in next door, it was TIME TO GO… I had limited funds and thought it impossible to buy a house.

If it was not for my 401K, I would not have been able to purchase an affordable home.

I bought a house in another city and better neighborhood. What price do you put on peace of mind and safety?

By: Jean

Jean — Thu, 27 Jan 2011 12:00:09 +0000

I needed some important home repairs or my homeowners insurance was going to cancel me. The only choice I had, after trying to get other loans for over a year, was a loan from my 401(k). It’s been almost one year and it will be paid in four more. Thankful that I had that option.

By: Inventory POS System

Inventory POS System — Thu, 27 Jan 2011 08:06:27 +0000

I appreciate your post, thanks for sharing the post, i would like to hear more about this in future.

By: Ria

Ria — Mon, 24 Jan 2011 17:11:01 +0000

As a single woman living in NJ, I used my money from my 401K to pay off debt and get better footing. I’m alot better off but still not 100%. I also took care of people for a number of years who were worse off then me. If anyone wants to judge how I paid off my debt, let them walk and 1/8 of a mile in my shoes.

By: carmen

carmen — Mon, 24 Jan 2011 15:59:16 +0000

I think we should not be penalized by using the money to pay off the mortgage.

By: carmen

carmen — Mon, 24 Jan 2011 15:58:08 +0000

I am a single mother of two, living on one salary and struggling to meet month end. I own a house and I have 7 more years to pay it. If I loose my job, I think I will take my 401K to pay my mortgage. I will not loose my house after so much sacrifice.