Forbidden Fruit

[CoolHandLuke]

Yeah i'm thinking about pulling money from 401k to pay off Car and Truck loans.... im stupid right?

truck 21000 @ 5% and 450/mo 4yrs left
car 8000 @ 5% and 200/mo 3 yrs left

29000 after tax comtributions

no mo debt = Deferred 3200 in intrest charges, but lost 4600 in growth (based on 29000 @5% x 3yrs)

"Freed up" $7776.00/yr

Pros-n-Cons, lets do battle.

[disneysteve]

Yeah i'm thinking about pulling money from 401k to pay off Car and Truck loans.... im stupid right?

Right!

Is you pull money out of your 401k, you will lose about 35% to taxes and penalties, so for every $1,000 you take out, you'll only end up with $750. It would be the equivalent of taking out a car loan at a 35% interest rate. Would you do that? I doubt it.

If you'd like advice on what you should be doing, tell us more. List your income, expenses and debts and we'd be happy to give some guidance.

[CoolHandLuke]

After Tax

Since the contributions have already been ransacked by the government the only penalties i will pay would be taxes on the Gains and the 10% penalty on early withdraw only applies to monies over the amount of $29,452.67

Keep em coming tho' this is the kind of stuff i need to sort through,

Thanks

[bjl584]

Since the contributions have already been ransacked by the government the only penalties i will pay would be taxes on the Gains and the 10% penalty on early withdraw only applies to monies over the amount of $29,452.67

So, it's a Roth 401K?

[disneysteve]

Since the contributions have already been ransacked by the government the only penalties i will pay would be taxes on the Gains and the 10% penalty on early withdraw only applies to monies over the amount of $29,452.67

So it's a Roth 401k. I'm not as familiar with those but if you can pull out contributions just as you can with a Roth IRA, that isn't nearly as bad a deal, though it is still a really bad idea.

Why do you want to do this?

[CoolHandLuke]

Trade Mark

Yes and No: it functions identically to one but for some reason Fidelity can not call this fund a roth but all of the workings are the same, i have had a long conversation with them about this.

[disneysteve]

Yes and No: it functions identically to one but for some reason Fidelity can not call this fund a roth but all of the workings are the same

That's odd. So what do they call it exactly?

[CoolHandLuke]

So it's a Roth 401k. I'm not as familiar with those but if you can pull out contributions just as you can with a Roth IRA, that isn't nearly as bad a deal, though it is still a really bad idea.

Why do you want to do this?

my savings account has become stagnant ever since i bought my BELOVED truck, (i'm not stupid, i'm American LOL) and now if anything out of the ordinary happens, DR. bill, Vacation, Flat Tire... its a hit we cant recover from as easily.

[bjl584]

It's a way better idea to sell the cars and replace them than it is to cash out your retirement. Even if you are upside down on them and you take a loss, it's still a better idea. A paid off car today does you no good 20 to 30 years from now when those cars have long since made their way to a junkyard and you realize that you don't have enough money to retire. What is the truck worth? What do you owe on it?

[disneysteve]

if anything out of the ordinary happens, DR. bill, Vacation, Flat Tire... its a hit we cant recover from as easily.

I think your list of potential "emergencies" is questionable. Doctor bill is fine. Flat tire - maybe, but that's really something you should be prepared for as a car owner. But vacation? How is that something unforeseen? That's one that you would be planning for and saving for in advance. They don't just suddenly creep up on you (might be nice if they did but they don't ).

So it sounds like you depleted your savings to buy a truck that you probably shouldn't have bought. Again, I'd suggest posting your numbers to get some real advice. Without any more info, the only advice I can give is not to raid your retirement savings to pay for your poor spending decisions today.

[CoolHandLuke]

401k

Post 86-After Tax Contributions, if rolled over properly (correct timeframe) no it will have grown tax free, but since i would be withdrawing early the gains/growth is taxed, therefore i would be taxed on $4,748.22, lets say 40% (just 'cause) = $1899.29

Making the taxes on the full amount (perspectivly) 6.5%

[CoolHandLuke]

Ok, ok...

bringing to light THAT im stupid is no astronomical feat, that is common knowledge, i want to hear WHY i'm stupid.

Seriously why is it THAT bad of an idea: i loose 6.5% but deferr 5% intrest and the money that i regain acess to isn't going to just evaporate, before i bought this STUPID truck (i love you tundra*) i would routinely pay down the principal of my mortgage, something that has not been done in about 3 months.

Talk, numbers.... more, effective. (Remember im STUPID LOL)

[disneysteve]

Talk, numbers.... more, effective.

If you'd like us to talk numbers, you need to provide some so that we have something to work with.

What is your monthly take home pay?
What are your monthly expenses?
How much is the car loan balance? Interest rate? Current resale value of the vehicle?
Do you have any other debts?
What do you have in non-retirement savings?

[bjl584]

Talk, numbers.... more, effective. (Remember im STUPID LOL)

In order to talk numbers, we need some numbers to talk about. What is your income? Your other debts? Your assets?

[riverwed070707]

bringing to light THAT im stupid is no astronomical feat, that is common knowledge, i want to hear WHY i'm stupid.

Seriously why is it THAT bad of an idea: i loose 6.5% but deferr 5% intrest and the money that i regain acess to isn't going to just evaporate, before i bought this STUPID truck (i love you tundra*) i would routinely pay down the principal of my mortgage, something that has not been done in about 3 months.

Talk, numbers.... more, effective. (Remember im STUPID LOL)

Agreed we need a more comprehensive picture to know whether it makes more sense to pull from retirement (likely not) or find other ways to cut and repay this debt. We get that you're feeling crunched but the bottom line is taking this money from retirement is appealing because its a quick fix, not because its the best fix. Saving 5% interest over 5 years is likely not going to outweigh the growth of your $30k retirement.

Are you still currently contributing to retirement? Although you're a tad behind, I'd rather see you stop current contributions and throw that toward the debt than to pull what you've already saved. Further, most people who come to these boards with similar questions have plenty of fluff in their budget and just need a plan for scaling back to attack their debt -- not only does this strategy make the most financial sense, it also teaches better spending habbits and puts you on the right track for accomplishing future goals.