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erinw71 · Aug 31, 2005, 02:58 PM

I have major amounts of debt. I am currently looking towards relocation. My question is.. If I cash out my 401k what is the penalty? Do I pay taxes on it upfront or at the end of the year? I declared bankrupcty once and unable to do it again. Lately this seems like me only other option. Any info would be deeply appreciated

RickJ · Sep 1, 2005, 04:44 AM

There are 2 things:
1. The 10% penalty for early withdrawal, and
2. The taxes on it.

Whether these amounts will be taken out by the company managing it is up to them. Some do and some don't. Ask your 401k contact whether they do or not.

shenda · Sep 1, 2005, 07:42 AM

Are you vested? If not, consider tightening the belt a little, curtail wants and focus strictly on that which is needed, true essentials. This will condition your spending habits, so that the cycle of uncontrollable debt will not be your portion. If you cash in on your 401K, will that completely eradicate your current debt, if not, you are merely stabbing yourself in the foot. If you will take the time to be honest with yourself, know your spending trends, generally, a minor adjustment is all that is needed to get control of things. First, you must know your spending habit, thus it requires you to think about your values, consider what can be sacrificed, that luxury that you can live without, this is about survival, not keeping up appearances. They say, pay now, or pay later. Pay now, whenever possible, pay later only when it is truly a vital need. Most times our income is sufficient to meet our needs, it is the allocation of such funds that get us into trouble. Consider this first before touching the money that works for you.

leatherseats · Sep 22, 2005, 05:16 AM

Hold the fort Amos (this is an old saying that means SLOW DOWN!)

There are several questions that need answering before you make your decision.
What is the amount of debt?
What is the total of your 401K?
What are the borrowing privileges of your 401k?
Are you presently employed?
What is your present income?
What is your ability to repay a loan to your 401k?

Sometimes it makes more sense to borrow for the retirement account than cashing it out. If all else fails, seek counsel from a professional financial planner who may have alternative solutions to cashing out and paying the penalty.