[littlelib3]

First let me state: I know the holy grail of 401k is NEVER CASH OUT.

That being said. My husband changed jobs six months ago and has an old 401K w/ a balance of 30k. (his new job is in a much more secure sector thank goodness: he is now a food broker)

With the markets being so unstable and the devaluing of the dollar we are very concerned about paying out debt so that our only monthly cost is our mortgage, food and utilities. Both cars are paid in full.

Our cc debit is 21k. In one fell swoop we could pay it off (after penalty fees) with his 401K. We stopped using our cc two years ago and have made significant progress but we would like to really clean the slate. This move would free up over 1500/month of his income(base pay).

We would shift from paying the banks and ourselves to only saving/ investing in ourselves.

Our interest rates on the cc are 15% which is higher than our rate of return on his 401k.

My husband's work is based on commission. If we see a downturn in the ecomony (which we will) we need to be able to rely only on his income base pay for our monthly fixed cost: commission pay would go to additional savings. Cashing in the 401k would instantly make that possible.

In the past we used his commission pay to pay off a home equity loan we took out for home improvement. That is paid in full. (we busted our butts finacially to do it in 4 years)
We could do that with the cc debt but it seems like the progress is minimal with the interest rates being so much higher than the home loans... we are paying much more than the minimum.

Our financial picture has imporved greatly in the last few years but we are really concerned about the monthly payment obligations on cc debt if the ecomony goes downward.

And I am sure the suggestion will be made to take on another job: that is not possible. My husband travels with his work and I do work part time. However, with three young children and him gone out of state mostly Mon-Fri I have to be home in the evenings otherwise I am paying someone so that I can work. That doesn't help our bottom line to pay off the cc debt.

[ebaines]

Sounds like you have carefully thought through the implications of making this withdrawal. One comment, however - if the current balance is $30K, you may not have enough to accomplish what you want. Remember that you will have to pay taxes and penalties on the full $30K - if we assume a 25% federal income tax bracket, that would leave you with about $19.5K to use. Further, if you live in a state that has income tax, you will owe that as well. In estimating how much you will actually owe in taxes, don't forget that the $30K distribution may well push you into a higher tax bracket than you would otherwise be in.

[ScottGem]

I'm not going to say get another job, but I AM going to advise against cashing out. First, as Emland pointed out, the taxes and penalties will take a big bite so that you won't see as much money.

But lets look at this from a different angle. Even assuming that the CC debt is at high interest rates, you are still losing the investment capability of the 401K funds along with the tax and panalties.

Have you looked into rolling over the old 401K into his current plan then taking a loan against it? You could easily reduce that $1500/mth nut to under $500 by borrowing $21K. And the interest you pay goes back into your account, so its forced savings at the same time. A 401K loan would be a win-win situation for you.