401k cash out at 27 yrs old

[mattyb30493]

Hey guys, I just wanted to know what the steps are in cashing out on a 401k from a former employer. I worked with a company for 4 years right out of college and my 401k was worth about 20k. With my new job, I'm struggling a little to pay off my rent and other expenses (various student loans) Do I need to talk with the HR department at my former employer or can I somehow cash out the 401k online? Really would appreciate some advice.

[witchkizzle]

Hey guys, I just wanted to know what the steps are in cashing out on a 401k from a former employer. I worked with a company for 4 years right out of college and my 401k was worth about 20k. With my new job, I'm struggling a little to pay off my rent and other expenses (various student loans) Do I need to talk with the HR department at my former employer or can I somehow cash out the 401k online? Really would appreciate some advice.

It sucks to have to do that. Is there really no other option for you at this point? A second job, or a new job? I just hate to see you have to resort to a cash out.

I don't know the exact way to get the money out, but are you aware of the penalties associated with an early withdrawal? 10% penalty on the amount you pull out.

[mattyb30493]

Unfortunately, I'm working about 55-60 hours a week with my job now. I started my own business and it hasn't been as profitable so far as I would've expected. I'm also trying to become engaged in the next year or so. It just feels like there is 1000 pounds on my back. Even if I could get half of the 20k from my 401k I feel like it would be a help. But yes, the penalties for taking it out have made me definitely look at other ways.

[dczech09]

That is an unfortunate situation. Cashing out the 401k is usually not recommended unless it would help you avoid bankruptcy. I think you are FAR from bankruptcy; after all, you cannot bankrupt the student loans.

I really recommend that you consider other alternatives. Is there anything that you can sell? Are you living on a balanced budget? Are you over-spending in some categories of your life?

If you cash out the 401k, it will be considered an early withdraw by the IRS. You will have 60 days to replenish the account, or the money taken will be subject to taxes AND a 10% penalty. You could be looking at anywhere between 30% and 50% of your 401k money going away in taxes! Not to mention, you kill your retirement account.

At age 27, having $20,000 in a 401k is not bad at all! Do you have any idea how much further ahead you are than most people our age? Why put an end to that?

Please consider other alternatives for your own good. I really do not think this is a good idea.

With that said, if you want to cash out, you need to talk to the HR department. They will withhold 20% of your balance which will go to the IRS. And the end of the year, you will file your taxes and the rest of the money that you owe will be calculated and you will have to pay it to the IRS.

I would expect your total liability to be about $8,000. The HR department will withhold $4,000. So you would need to set aside another $4,000 in a savings account so that you can pay the tax bill when that day comes. If you don't, you will run into issues.

If you choose not to cash out the 401k, the you need to do a direct transfer to an IRA that you set up on your own.

[Eagle]

Hey guys, I just wanted to know what the steps are in cashing out on a 401k from a former employer. I worked with a company for 4 years right out of college and my 401k was worth about 20k. With my new job, I'm struggling a little to pay off my rent and other expenses (various student loans) Do I need to talk with the HR department at my former employer or can I somehow cash out the 401k online? Really would appreciate some advice.

As I understand it you would be paying a penalty (say 10%) and your tax rate (say 20%) by cashing it out. So really you'd be paying a penalty and your tax rate to get your hands on this money... So in my example above that's like a 30% (or 6k) reduction in your 401k as soon as you cash it out.

Unfortunately, I'm working about 55-60 hours a week with my job now. I started my own business and it hasn't been as profitable so far as I would've expected. I'm also trying to become engaged in the next year or so. It just feels like there is 1000 pounds on my back. Even if I could get half of the 20k from my 401k I feel like it would be a help. But yes, the penalties for taking it out have made me definitely look at other ways.

Perhaps it's time to go get a job with a company that will allow you to pay your bills? Getting engaged or married while loosing money in your business will cause stress on your relationship.

My advice: Don't cash out the 401k. Get a different job.

Hang in there. Things will get better.

[snafu]

Do I understand this correctly, you signed on for a new job that doesn't pay enough working 55-60 hrs per week to cover basics rent, utilities, food SLs? I hope you can eek out enough time to search for better paying work. Get on LINKEDIN and any other electronic hiring site.

As everyone agrees cashing out a 401k is the worst solution, that money is not actionable by creditors, you will not be able to repay, recover the sum lost nor the sum already gained or opportunity for gain over the next 30 yrs. You will lose at least 20% in penalty and taxes. It's more difficult but you should try to work with creditors to find a way to reduce payment. If you can't afford the rent, get a room mate or give notice and find a cheaper place. Lower your standard of living to meet your income and your financial obligations.

When your income increases you can increase your standard of living.

[Dsquared513]

You will have to pay taxes on the money one day no matter what, all you are losing is the 10% and the compounded interest. If its one of the only options for you then take as little as possible and put the rest in an IRA. But who knows where taxes will be in the future and hopefully your business will pick up and put you in a much higher tax bracket and you can break even on the penalty. Good luck with your business, keep working at it.