I got laid off. Now I'm eyeing a 401(k) cash out.

[sgrams04]

I was laid off a couple weeks back. My termination date is this upcoming week but I am fortunate enough to receive 8 weeks sevarance.

I'm a 29 year old software engineer with an MBA and my education was not cheap. I am $100,000 in student loan debt, half of which is private.

My 401(k) balance says $68,000 (fully vested) and my employer says I have the option to cash out. With so much student loan debt, the cash out looks so tempting as a means of killing my private student loans.

Zeroing my 401(k) balance makes me sick to my stomach (it took me 4 years to build that much), but if I can eliminate a huge chunk of student loan debt, I can afford to increase my % contribution with whatever new job I get.

What should I do?

[Retired To Win]

I do not believe that student loan debt can ever be sidestepped, not even through a bankruptcy. In your position I would therefore take the 401K money and pay off as much of that debt as possible.

HOWEVER, since you do not know how long you are going to be out of a job, in your shoes I would wait until I did have a job before doing anything with the 401K money (because I believe you can cash out later just as easily as you could now).

Keep you powder dry for now!

Good luck

[Petunia 100]

You will lose one-third to one-half of your balance in taxes and penalties. You will lose the compounding power of 68k. Is this a good idea? No.

Once you have a new job, contribute enough to your new 401k to get the match, then hit your student loans hard. Good luck!

[rennigade]

You're a software engineer with an MBA. If you cant find a job in a short amount of time theres not much hope for most of the people out there.

Do not cash in your 401k. Dumbest thing you can do and you will regret it as long as you live.

[TheCudder]

You're a software engineer with an MBA. If you cant find a job in a short amount of time theres not much hope for most of the people out there.

Do not cash in your 401k. Dumbest thing you can do and you will regret it as long as you live.

Agreed. As a software engineer with an MBA, I'd shocked if you were unable to land another job before your 8 weeks severance pay is up.

[KTP]

You have to totally suck as a software engineer in this environment in order to stay unemployed for more than a few months. Either that or you would need to live in Podunk Alaska, population 25 and have no internet access.

My software engineer wife gets about 3 offers a month and she hasn't sent out a resume in 10 years.

Move to the west coast, interview at Google (they are hiring everyone), pay off your loans in a couple of years.

[Reggie]

I am a software engineer and lead at my company. I am always hiring! Always. If you are decent you will land a job before you severance is up. Don't cash out your 401.

[edg126]

I am also a software engineer with an mba. Literally the next day after an unexpected layoff I was in another office signing a contract to work as a 1099 contractor. Which I did for 2 months while interviewing for standard w2 employment. During this time(2010 during the recession). I got about 2 serious offers a day for contract gigs. So there's really no need for you to be unemployed at all. I would not cash out your 401k.

[sgrams04]

Thanks for the replies everyone. I know I will land a new job very shortly, but my question was geared more towards whether or not I should take advantage of the cash out on the 401(k) in order to pay off a large portion of my student loans.

Sounds like this is not such a great route to go and to just stick it out with the balance I have now.

[KTP]

Sounds like this is not such a great route to go and to just stick it out with the balance I have now.

If you want to do something dumb, go to the bank, take out $100, get a lighter and burn $20 of it. Unfortunately, this is still smarter than cashing out your 401K when you have the ability to easily earn enough to meet your loan payments.

[97guns]

Do not cash in your 401k. Dumbest thing you can do and you will regret it as long as you live.

provided you live another 30 years to age 59

[corn18]

provided you live another 30 years to age 59

You could put that caveat on most anything.

[disneysteve]

my question was geared more towards whether or not I should take advantage of the cash out on the 401(k) in order to pay off a large portion of my student loans.

You will pay about 35% in taxes and penalty if you cash out your 401k. Think of it as taking out a loan at 35% interest to pay down your student loans. Unless your loans have a rate of more than 35%, which I'm sure they don't, it would be insane to take that deal.

[Petunia 100]

You will pay about 35% in taxes and penalty if you cash out your 401k. Think of it as taking out a loan at 35% interest to pay down your student loans. Unless your loans have a rate of more than 35%, which I'm sure they don't, it would be insane to take that deal.

That's 35% federal. Depending on where you live, your state may help themselves to a nice chunk as well.

[disneysteve]

That's 35% federal. Depending on where you live, your state may help themselves to a nice chunk as well.

Good point. So figure AT LEAST 35% and possibly more.