Has anyone here cashed out their 401K?

[gateley]

Thanks!

[Faygo Kid]

1. Yes, four years ago when I was unemployed. Paid the penalty, too.

If you can at all avoid it, do so. But, I had no choice, with the bankruptcy laws what they are. Glad to report that all is well now.

[DesertFlower]

4. glad to hear that. nt

[gateley]

15. Yes - I have no choice either,

and will probably go ahead and go for it. And, like you, I'm hope to be saying in a few years that "all is well". Thanks -- glad it worked out for you!

[maddiejoan]

2. I had to a few months ago.

Up until this last Friday (I finally got a job) I had been unemployed for the last 8 months.

[DesertFlower]

5. congratulations. hope it's a good one. nt

[maddiejoan]

6. I do too

It's a lot less money than I used to make, but it's a job in a field that interests me --and in this economy and political climate, a 47 year old openly transgendered woman takes what she can get.

[DesertFlower]

9. a few months ago i was at my doc and

a new medical assistant took my vitals. actually i think she was doing her externship. we were chatting away and then she told me that she was actually a man. said i was only the 2nd person that she told. i imagine she had told my doc. i was pleased that she felt comfortable enough with me to give me that info.

[maddiejoan]

22. It's tough out there for TGs

we are often what they call "under-employed".

Looking for a job is hard for even those of us who "pass". Any google search of me would tell anyone who wants to know that I'm TG.

It's not something I hide from folks.

I'm curious at the med asst.'s terminology though --I'd never tell anyone I was a "man", as I don't consider myself to have ever been one. I'd be more inclined to say "I'm a transgendered woman".

[DesertFlower]

31. interesting. i never thought about that. nt

[DesertFlower]

33. i just googled you.

saw you on "my space".

[maddiejoan]

36. heh

stalker :)

[DesertFlower]

37. i was curious.

:toast:

if i google myself nothing comes up. i'm so "insignificant". x(

[gateley]

17. That's the boat I'm in -- but it's been over a year since I worked.

Congrats on your new job! I'll tell you one thing, when I DO get another job, it for sure won't pay what my last one did, but I've learned how to live on basically NOTHING.

What did it entail? Did it take long to get the dough? :-)

Thanks -- and again, so happy you got that job. :toast:

:hi:

[maddiejoan]

28. I cashed in over the internet

I got a check 15 days later --and it kept me from getting evicted.

I hear ya on the live next to nothing -- I got the job this Friday morning --I start this Monday. It's a huge pay-cut for me, but I celebrated by ordering a pizza.

I hadn't done anything that extravagant in 8 months.

You might wish to try what I did --looking at other fields that have transferrable skills. I'd been an Art Director, now I'm a Studio Manager at a recording studio.
I couldn't get arrested for being a graphics designer as everyone told me I was 'over-qualified'.

A huge help to me was the book:

"What Color Is Your Parachute?"

I took it out from the library --no need to spend money on a book right now if you can avoid it.

[gateley]

29. I'm logging on to the website now!

(Before my phone and power get disconnected).

I went through McDonald's for my 99cent burger, and almost wept looking at the picture of Iced Tea on the menu! Some day!

And a pizza to me now would be like going to Ruth's Chris back in the day -- I can hardly wait.

I'm looking at every field.

When you mention how much less you make, I was shocked to see an article on cnn.com about "good" temporary jobs that pay well and lead into full time positions. The "pay well" amounts were what I was making 20 + years ago as a front desk clerk at a hotel. And my rent was $150! Amazing.

I have to laugh at your mention of "What Color Is Your Parachute." That's been around FOREVER -- and it's always been one of the best go-to resources available.

Thanks again for all your help and input. I feel better already. :hug:

[maddiejoan]

34. Yup

at 47 years old --I now make exactly what I made at 27.

and the cost of living has gone up considerably in 20 years.

Still -- after 8 months of lentils and rice, ramen noodles, or pb&j --that pizza might as well have been filet mignon.

I'll light a candle for ya tonight :)

You'll take a major hit on 'taxes' from cashing in --but even a month's peace of mind can make all the difference when interviewing for jobs.

[gateley]

41. Yes -

Even such a temporary piece of mind is SUCH a weight off our shoulders.

And I'm salivating for MY pizza!

:hi:

[panader0]

3. I don't have one

But my girlfriend says if you go early it's penalized, not only taxwise but with early withdrawal costs. I hate that early withdrawal penalty.

[gateley]

27. Yeah. Sigh.

When you really need it, they penalize you for it.

[DesertFlower]

7. we have one that's becoming

quite substantial. hubby is 60 and is also eligible for a nice pension. i wonder what the tax consequences will be when we do use it. we're planning to put it into an annuity and collect a monthly income in case of a long term disability.

he's planning to work another 5 years or more if health and the company allow it.

[napi21]

8. You wouldn't have a penalty. There's no penalty after you've reached 55.

For anyone else, I suggest cashing out your 401K as a LAST RESORT! I know the temtation is there, and sometimes there's no choice, but the penalty is I believe 10%, plus you have the tax consequences.

[DesertFlower]

10. there's no penalty, but there are taxes due.

they let you put the money in "before tax", but they're gonna get their share sooner or later.

[A HERETIC I AM]

18. There is an early distribution penalty until you are 59 1/2.

From the IRS website, here is the publication which discusses IRA's and this one discusses 401k plans. The rules for distributions and penalties are very similar.

Yes, distributions taken before the age of 50 1/2 are charged 10% of the amount taken as a penalty and the entire amount is taxed at your marginal rate.

[gateley]

23. Oh - I was getting excited there thinking I could

forego the penalty because I'm turning 55. Well, I really do need the money before the end of the month, so in the big pic, it'll be worth it I think.

Thanks for the links!

[A HERETIC I AM]

51. Shit! 6 days later and I just noticed I had the number right in the subject line but wrong in the

message.

Yes, distributions taken before the age of 50 1/2 are charged 10% of the amount taken as a penalty and the entire amount is taxed at your marginal rate.

SHOULD read 59 1/2, just like it does in the subject line.

[gateley]

19. Whoa -- I'll be 55 at the end of the month!

(Never thought I'd see the day when I'd be happy about THAT!)

So are you saying that I won't have to pay the penalty? I understand I'll have to pay the taxes, but every little bit counts.

Thanks!

[Extend a Hand]

35. We're going to try to retire early

when my husband turns 55 this year, our jobs are scheduled to be outsourced over the next 2 years.
Apparently there is a way to get the money before 591/2 without the 10% penalty if you are 55 and not working by taking 'substantially equal periodic payments' for 5 years. There are rules about how you have to do it though to be sure to avoid the penalty.

[gateley]

42. Well I'm glad that have that provision -

and although it doesn't help in my situation, it's nice to know that it'll be an option for you two.

[dugggy]

48. Not 55, I think age is 59.5 for no penalty

[A HERETIC I AM]

11. The tax consequences will be the money is taxed at your marginal rate.

Fincalc.com has financial calculators that address that concern as well as many others.

[DesertFlower]

13. thanks for that info. nt

[gateley]

20. Thanks for the link! nt

[latebloomer]

50. no it's 59 and a half n/t

[Lerkfish]

12. you have to weigh the cost taxwise and withdrawal wise

my wife quit her job and we simply used the money. as it turned out, since she didn't work, the taxbite wasn't as bad so it worked out. We paid off some outstanding credit cards and most of one car. In the long run, that was worth it to us.

[gateley]

14. I have no choice either.

Been unemployed for a year - gulp! And didn't even know I had that option. It's not much, but it would be a lifesaver at the moment.

[DesertFlower]

16. we used to take loans on ours.

then we paid it back with interest. figure it was better than the interest on financing a car. we also took a loan from it to buy property. we haven't touched it now for over 10 years.

whenever we did take the loans i made extra payments so if we took it for 2 years, i'd get it paid back in a year or less.

[gateley]

21. That's a perfect use for it!

I can't get a loan, of course, since I'm unemployed...

[msedano]

24. does the plan allow a loan?

i know some plans allow a loan for educational and similar purposes. it's a rich person's tax dodge that ordinary 401k owners can benefit from. if you can take a loan, you agree to pay it back with interest. the interest goes back into your own account. hence, if the interest is 15%, your payment of loan + 15% increases your holding by the interest amount.

[gateley]

25. I'm unemployed so ineligible for a loan.

Another kick in the gut for those of us with no income. :-(

[msedano]

43. You have studied the plan document well,

yes? You know for sure the plan denies you a loan when you have no income to payback. for sure you know this? I always advise folks to go by the letter of the law on these things, and that means going on the basis of employee manuals in work-related hassles, in this case, the administrator's written plan document.

if withdraw you must you know you'll pay 20% federal tax, your state rate tax (but you might be able to waive that), and a 20% penalty for early withdrawal. this is why it's geneally good advice not to cash out, that 40% dip in value, and the total loss of that penalty money. the amount withheld for taxes would calculate into your taxable income. if your unemployment has left your income badly short, you might get the 20% back in your tax refund.

a wild hair up the ingus idea. can you rollover the 401k money into an ira or other qualified account? as long as you don't touch the dough you have no penalty. then perhaps whomever you've rolledover into will lend against the ira.

[gateley]

44. I'll be speaking to JP Morgan on Monday.

From what I can gather, it's up to the employer to grant a loan, and since I don't have one of those...

Somebody told me that a friend of his rolled it over to an IRA which matured immediately (this makes no sense to me), so she immediately had access with no penalty.

When you have zero dollars, even 60% of an amount is a lifesaver.

I know it's difficult to understand, impossible, really, unless you're facing the situation yourself.

I DO appreciate all your help, and I will definitely check with the folks at JPM on Monday to discover all my options before I pull the plug. :7

[Lost-in-FL]

26. I might have done something stupid but...

there was no way in hell I was going to pay a higher interest (14 to 16%) on my credit cards so I gave them the finger and took a loan against my 401-k (5%) to pay all my higher interest cards. Fuck'em, not giving my money on interests. I am not going anywhere anytime soon and if the market crashes its them and not me getting the big one. I am giving the minimum to my 401-k in case someone steals my money. With things the way they are I don't see myself lasting until retirement anyways.

[gateley]

30. Taking a 5% loan sure doesn't sound stupid to me.

Sounds like you did the right thing! And I bet you slept better at night not having those cc bills hanging over your head...

[gateley]

32. Thank you EVERYONE --

I did a search on "cashing out 401K" -- "EMERGENCY cashing out 401K" etc. and only found links admonishing the reader NOT to do it.

But I should have known that as usual, DU is an amazing resource with straight answers and voices of experience on just about every topic.

I'm really appreciative of all your help, input and stories. It makes me feel better and I've stop crying for the moment!

:loveya:

[Lost-in-FL]

38. yup!!

:beer:

[SlowDownFast]

46. It might not have been stupid, after all.

Better to take the 25-40% hit than to lose it all.

[elehhhhna]

39. Look into bankruptcy FIRST.

They can't touch your retirement money. Leave it there if at all possible.

[gateley]

40. Good advice, but I have no bills --

just living expenses, so nothing to declare bankruptcy FOR. (If I'm saying that correctly.)

It's the living expenses, rent, food, utilities, gas, that I need the money for.

[Chacarron]

45. Not me

too poor to enroll in 401k.

[bhikkhu]

47. Cashed out 15k in 2005. Misc issues...

The bank holding the 401k seemed uninterested in paperwork and just gave me the whole amount, so the 10% penalty was filed and paid with my taxes the next year. Having to pay the penalty and claim the cash out as income was a bigger hit than I expected, but it worked out ok. I used the money in part to help buy an investment property at below market.

Reading income issues on this thread, my hourly income peaked in 1987 and has declined steadily since then. A week of work paid the rent then, now it is two weeks and everything else has gone through the roof as well...it is hard to keep track where it is a continual erosion over many years...but things have been tight for a long time and the "good old days" of not even thinking about power and water bills, eating out or what was for dinner seem to be long gone.

Still just fine anyway, and a big garden planned for this spring. Good luck to you.

[leftofthedial]

49. yep

got divorced, sold everything, paid all the penalties, divvied it up according to the separation agreement, paid off all debts and paid taxes like a one-year millionaire (when I didn't have the dough to buy my kids a birthday present) two and a half years ago.

No savings left, just the "equity" in my "new bachelor-pad" low-end townhome.

[Lochloosa]

52. If you need cash. Roll it into a IRA and withdraw only what you need

I learned this one the hard way.

Cashed out a 401K and payed a heavy price for it.

[A HERETIC I AM]

53. The rules regarding early distribution of an IRA and a 401(K) are almost identical.

Unless the person is older than 59 1/2 years old, and with only a few exceptions, the penalty the IRS charges is 10% of the total amount withdrawn, PLUS the entire amount is taxed at your marginal rate. This applies to money in a 401(K) plan as well as money in an IRA account.