401k distribution

[Radiance]

Hello,

I don't have a 401k with my current emploter and thought I didn't have 401k at all. It turned out I have a 401k from my previous employer with $12,724. (I am working on getting a hand on my finances...)

Because I changed employers and the 401k is not rolled over I can not ask for a loan, but I can ask for that account to be distributed, which means 20% in taxes, 10% in penalties and maybe other fees.

So, I guess might be able to get $5000 out of that account. I am in a whole series of financial dilemas and that money would help, any considerations before I go ahead?

Thank you!

[Merch]

You have the hardship penality of 10% and then you will have to pay income tax on top of that. So it is probably closer to 35%-45% in taxes and penalities.

[disneysteve]

My stock answer to this is NO. NEVER. ABSOLUTELY NOT.

That said, we need to know what your situation is. Why do you need this money? Why are you willing to throw away thousands of dollars to get what will be left?

Retirement savings are for retirement. Unless there is an absolute catastrophe, that money shouldn't be touched.

I'm also curious how you could forget about almost $13,000.

[Radiance]

I forgot because, until now, money has been a nuance I dealt with because I had to. I know it makes no sense, but I guess I had a very unhealthy relationship with my money. This words are taken from a Suze Orman speech and it really hit home. I work hard and want my money to take care of me but I treat it like it is bothering me?! It makes no sense.

So, here I am 39 years old and decided to face my financial truth and do my best from now on.

I just talked to a financial advisor, my hardship situation includes
Separated and ex doesn't have money to help out. (he contributes $150/mo)
a toddler
a baby on his/her way
aging parents overseas, mom is fighting colon cancer which is not covered, I am an only child so all is out of [my] pocket.
No savings, limited 401k I didn't remember about. I know, shame on me.

If I get that money out I get out of credit card debt.
Only debt remaining would be the mortgage (2200), the car payment (300) and a signature loan I used to consolidated other cards I had (360)

My lender already temporarily reduced by interest rate to 5.5% which translated into -650 a month. That was based on separation and first baby.
I need to updated them on medical bills for mom and the second baby coming in. If they are not willing to reduce the interest further more and/or extent the duration of the mortgage, I matematically can not keep the home.

It is as simple as that. I am looking into ways to spend less money (my budget is a mess, particularly on food) and make more money (rent a room and take therapy classes ($175) to work on that on the side)

I am not stressed anymore, well, just a little bit. I am doing my very best.
I am reaching out for help, I am learning, I am opening all my mail , cheking my balance regularly...I am getting this sort out somehow.

I will need to get that money, set myself better now and then work hard on building a retirement plan. I think it should include purchasing assisted living insurance for me...woman, non smoker, no diabetes, hopefully around $200...? Advisro told me to check the product very carefully!

THis is all new territory for me, I will teach my kids to take care of their finances as they grow. (the older one has a savings account with $100 )

[asmom]

Originally Posted by WealthyMe

Hello,

I don't have a 401k with my current emploter and thought I didn't have 401k at all. It turned out I have a 401k from my previous employer with $12,724. (I am working on getting a hand on my finances...)

Because I changed employers and the 401k is not rolled over I can not ask for a loan, but I can ask for that account to be distributed, which means 20% in taxes, 10% in penalties and maybe other fees.

So, I guess might be able to get $5000 out of that account. I am in a whole series of financial dilemas and that money would help, any considerations before I go ahead?

Thank you!

If you have $12,724 in your 401K and you pay 30% in taxes and penalties, that means you will receive $8907, not $5000.

My advice to you is to calm down and look at what you really have -not guess- versus what you really owe. Then you will be able to make an intelligent decision.

Generally I always advise against 401K withdrawal but it sounds like your financial house is on fire so you may have to but not before you sit down and make a rational and well-informed decision about what to do with the money.

[creditcardfree]

I'd sell my house before I'd touch my retirement. One can always rent for far less than $2200/month.

I'd highly advise against a 401K withdrawal. I'd also advise against long term care insurance until you get other things in place.

Give us a better breakdown of your financial situation. What is your income? What are your expenses?

[sandrark]

Originally Posted by creditcardfree

I'd sell my house before I'd touch my retirement. One can always rent for far less than $2200/month.

I'd highly advise against a 401K withdrawal. I'd also advise against long term care insurance until you get other things in place.

Give us a better breakdown of your financial situation. What is your income? What are your expenses?

THIS.

It's absolutely insane to spend $2200 a month on a house unless you're making more than $100K per year.

And if you make that much, there's no way you should touch your retirement account. It's not enough to make a big difference to your current financial situation. Conversely, left alone, it might make a big difference to your FUTURE.

In order to help, we need info:

How much do you bring home monthly (net?):
Housing:
Groceries:
Transportation: Do you have a car payment too?
Utilities: Do you have cable? Cell phone AND a home line? Have you bundled your internet/phone/etc. to save?

Can you take in a roommate?

In short, there is hope. But to get a grip on this, you have to stop hiding, and start confronting the situation honestly.

List ALL your debts out too:

CC1: Balance/minimum monthly payment/Int rate
CC2: Balance/payment/rate
Student Loan: Balance/payment/rate
Car loan: balance/payment/rate

This will help us give you the best advice.

You can do this! You're not on fire yet, just panicked.

Sandi

[asmom]

Originally Posted by creditcardfree

I'd sell my house before I'd touch my retirement. One can always rent for far less than $2200/month.

I'd highly advise against a 401K withdrawal. I'd also advise against long term care insurance until you get other things in place.

Give us a better breakdown of your financial situation. What is your income? What are your expenses?

I missed that about the long-term care insurance the first time; that is absolutely not to be considered at your age and in your financial circumstances.

[Runaway Finances]

On a 401K withdrawal at your age you pay the 10% penalty plus taxes at your bracket. The law says they have to withhold 20% but that doesn't mean that is what your taxes will be. It could be more or less. You would add the distribution on top of your other income so it will be at your top bracket. So, the 20% may not be enough.

We don't have enough information, but it sounds to me like I would be looking at selling the house. You have already consolidated credit cards at least once and unless you change your spending habits then you will be doing it again.

You should first get a spending plan. Take the time to figure out what you have spent the last 12 months. You need to know what your fixed expenses are. Then subtract those expenses from your income to determine how much you have to spend on other things. This process cannot be done successfully off the top of your head. You need to have a "date" with your last 12 bank statements and get ready for an eye opening experience.

[Radiance]

I am having a phone session with a budget counselor (a free service through my credit union)
You are totally right, I need to know what do I spend where, to the cent.
I only know when it comes to bills...
Will let you know how it goes, I am not touching the 401k yet.
Thank you all!!

[Merch]

WealthyMe, good for you.

Sounds like the right path and good luck.

[creditcardfree]

Originally Posted by WealthyMe

I am having a phone session with a budget counselor (a free service through my credit union)
You are totally right, I need to know what do I spend where, to the cent.
I only know when it comes to bills...
Will let you know how it goes, I am not touching the 401k yet.
Thank you all!!

That sounds like an excellent idea! Ask lots of questions. If you are unsure of something ask the advisor again to explain it, or come back here. Take some time to think about the suggestions the advisor makes before you sign on any dotted line!

Good luck.

[Radiance]

Thank you, I just finished.
The truth is I am just in the line with a deficit of $300, but I should be able to reduce my grocery expenses by $300 according to the advisor.
This means 75 dollars a week for groceries, household items and diapers.. is that possible?

After that, I am literally paycheck by paycheck which means no space to maneuver under any emergency or unexpected expense.
She didn't include toys or baby medicines....she says that is what savings would be for.

I need to track my expenses, no way around that.
I need to eliminate debt which is $500 a month in payments

[Runaway Finances]

I just re-read the threads, and the answer is "no" $75/week is not realistic with a kid and no other extra. I recommend you look at your housing. What did the advisor say about that?? Can you sell your house and find cheaper housing? My concern is major repairs on the house and unexpected expenses (medical, car repairs, etc.). These will cause you further problems and those unexpected expenses WILL occur.

I just heard on CNBC today two stories of people who called lenders and negotiated their payments down. One was a mortgage and the other was credit cards.

You first need to sit down and find out where you spend your money. This is not hard. Grab your last 12 monthly bank statements. Go through each bank statement one at a time. Make a list of all your FIXED expenses (These are expenses that you pay from home and are like mortgage, insurance, loan payments, utilities, etc.). Make 12 columns to the right of this list of expense and write down FROM THE BANK STATEMENTS what you actually spent (don't guess) each month on those fixed expenses.

Now, look at each category of expense one at a time. Look at the twelve payments you made toward that category and pick an amount that is equal to or greater than 10 of the 12 payments. Write that number out to the side of that category. Do this for each category of expense. Now, total these amounts you just came up with. The result is your monthly budget for your fixed expenses.

Now, subtract that total amount from your net take home income per month. The difference is how much you can afford to spend on discretionary expenses (ie. groceries, haircuts, clothes, gas for cars, etc.). Discretionary expenses are typically expenses incurred away from the house.

Once you have this spreadsheet, it is essentially something you can then use with your lenders to prove what you can afford.

It sounds to me like you are going to need to make some really tough decisions. Cut out EVERY unnecessary expense (including cable TV).

If you want to control spending going forward, you need to take the amount you come up with above for discretionary spending and divide it by 4 to come up with a weekly amount. Take that amount in cash each week. Do it on Friday. You get a "paycheck" each Friday. You will run out of cash but don't cheat. Limp along until you get to the next Friday. Your decisions about what you can afford are simple...look in your wallet/purse and if you don't have enough cash, then you can't afford it.

If this seems overwhelming, you can go to our website and purchase the subscription ($35/yr) and it has an online spending planner that does the work of the spreadsheet for you. All you do is enter the numbers which doesn't take more than 2 hours. But, you can save the money and just do the steps I outlined above.

Also, a book comes with the subscription, but we are about to change the website and offer the book for free. If you want the book, go to our website and send us an email requesting a free copy. You just have to give us your name and email address. The book describes the plan I laid out above. DO NOT SIGN UP FOR THE SUBSCRIPTION IF YOU DON'T PLAN ON FOLLOWING THROUGH WITH IT THOUGH. You can't afford to waste any money.

Ask more questions and I'll help as much as I can.

[banditfist]

Just want to through this out there as a consideration....even though you nor anyone else has mentioned bankruptcy

You need to evaluate your situation. If touching your retirement is only going to prolong the pain, don't. If you can put together a reasonable plan and stick to it, then maybe.

Here is why: If you file bankruptcy, your retirement accounts are 100% safe from creditors. But if you liquidate that account and then file....the money is gone forever.

[anonymous_saver]

I would absolutely not take a loan from your 401(k), even in your situation. I would have that directly rolled over into a Roth IRA, that you will not touch until retirement. Seriously. You would be losing thousands of dollars just to get a partial fix on some current issues. I think you could do better with your current situation first.

No, $75 a week is not realistic for all of the things involved. I still think you need to write a list of all your debts (with interest rates, payments, etc.), your take home pay, and other expenses. I think it will really come down to selling your home. I don't know what you earn, but that's a pretty big mortgage to handle on one income in your situation. I hope you are able to share more details so we can assist you more specifically.

Thanks and good luck!

[disneysteve]

Originally Posted by anonymous_saver

I would absolutely not take a loan from your 401(k), even in your situation. I would have that directly rolled over into a Roth IRA

I wanted to clarify this. You would rollover a 401k to a rollover IRA, not a Roth. If you wanted to convert your 401k (pre-tax dollars) to a Roth (post-tax dollars) you would have to pay taxes on the money first.