I have contacted my plan administrator,CUNA, (several times), regarding cashing out my 401k due to divorce. I was told of my limited choices and that cashing out was unheard of and also that I did not qualify in anyway for a hardship case. She told me divorce was not a hardship! (BS)I have exhausted all other options over the course of several months and cashing out is the only viable option. I am fully aware of the implications involved, with taxes, penalties, etc. I can not afford the mortgage on my own, nor can my husband. We can hardly afford it together let alone apart. I am the primary on our mortgage and I stay so stressed about money. This would take a great weight off my shoulders. Please help. I just want to payoff the mortgage and get on with my life. I do not want a loan on my 401k, because I am still in the same boat, trying to pay it back, which I can not do.

I'm sorry but I don't think you ARE really understanding the ramifications. By paying off your mortgage with your 401K you are throwing away a great deal of money, Between taxes and penalties and the loss of a tax deduction, it can easily cost you double what you get out of the 401K.

Have you considered selling the house and moving into a smaller house? Have you treid refinancing?

How much money are we talking about?

And talking a "loan" out does not mean you have to even make payments, it is a loan and just stays a loan, if you retire without ever paying it off, it shows up as a payout.

So think seriously on taking a loan,

If you take it out, you do know you will lose 33 percent or more to taxes and pealities.

Also if you are getting a divorce, who is going to get the hosue, has this been resolved in court, who has to pay and so on.
Would be bad for you to pay it off and he ends up getting the house in divorce court.

Chuck, I have to correct you here. Most plans that allow a loan require that payments be made by payroll deduction.

Scottgem: Selling the house it not an option. It's been in the family for too many generations. This is not arguable.

I asked about refinancing. The house is worth $45,000. We owe approximately $16,000 on the mortgage. There is also a $7,000 tax lean on it from the USDA that is not included in the loan. In order to Re-fi, they want to add the tax lean plus all closing costs, which when figured was approximately $25,000.

For reference, the 401K is $32,000 with a $4,500 loan.



Fr_Chuck: First off, this is more of a "friendly" divorce than a heated battle. As it stands now, my husband's name is on the house. He does not wish to refinance and add that amount of money to the mortgage. There will be a written agreement in the divorce that affirms a fair bi-weekly payment as deemed appropriate by both us and the lawyers.

Also, with my CUNA plan, I would have to pay the loan off bi-weekly, as Scottgem stated in his last post.



All in all, what I was trying to accomplish was to be completely free and clear on the house, even if it means losing money, even a large amount, on the 401K (I still have a good 10 years to put back into it, if need be). How would I achieve this, as a CUNA rep told me that this is unheard of, and was not possible. These were her exact words.

Do I have any way to take this money out? Do I have to fight this in court, or is there some paperwork that the rep is not informing me of?

Thanks, Countycork.

First, if the plan prohibits in service withdrawals (which it can) then that's not an option. So we have eliminated two options.

I would STRONGLY advise against paying off the mortgage. Assuming you only withdraw the $16K you would actually have to withdraw more than $20K to net $16K. Just on the 20% witholding you would have to withdraw $20K to net $16. And that doesn't take into account the 10% penalty.

You can get a 15 year mortgage of $25K for between $200-$300 a month/ How does that compare with your current payment? Between the investment loss from the 401K and the loss of the mortgage tax deduction you are going to be losing money.

I didn't bring this up earlier, but my husband is 56 years old, doing physical labor as his daily job. This makes us worry about 15 more years of payments. I had been looking at a $25K re-fi for 5 years, and this made the payments incredibly high.

I think for the time being though we have made a decision.

Because of your input, you have shown me how much money I really would lose, and how low the mortgage payments would be for a 15 year re-fi, so I think that we will try to re-fi for the $25,000 at 15 years, and pay until we are unable. Then, if deemed necessary, we can take the rest of the money out of the 401K. In the mean time, I will gain money on the $28,000 or so that remains in it.

Thank you so much for your input. You have taken a giant weight off my shoulders.

Countycork

It cleared everything up and showed me the error in my previous thinking.

Yes, a 5 yr loan is not practical for you. Even at his age 15 yrs is more practical. When you retire, then you can look at paying off the loan.

Sorry , guess my couple 401 Ks were just lucky, I was able to borrow against them when I needed to without any set pay back. So since I was able to, I assumed everyone's would be like that.

But even so, often the interest rate from a 401 K loan is a lot less than you get anywhere else,

countycork, don't forget. You will eventually be eligible for a reverse mortgage. Then you can stay in the house until you must leave for health reasons or die.

The 15-year mortgage with low monthly payments is the best way to go, In my opinion.