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caperosa · Nov 10, 2008, 01:23 PM

I am not that smart with money, here is proof:

I had credit cards loans and other, so I took a loan out of my 401 (k).
I am currently paying it plus the regular deposit on it.
I still have twenty thousand to go in order to finish the payment on my 401 (k).
I want to try another job, I know that once I am out of my current job, the 401 (k) will have to be paid in 60 days.
Is there any other option?
Can I tell them: well, I can't do it, I can pay this much ( the same amount I am currently paying) every month.:confused:

ebaines · Nov 10, 2008, 01:31 PM

You can't stretch your loan oiut past the 60 days, sorry. If you are unable to repay the loan within the 60 days of leaving your job, the outstanding amount will be considered a distribution to you. You will have to pay income taxes on the $20K distrbution (federal and state/local income taxes as applicable to where you live) plus the 10% early distribution penalty. Not knowing what tax bracket you're in - you may have to come up with $6K or so to pay the IRS when you file your 2008 taxes, plus whatever may be needed for state/local taxes.

ScottGem · Nov 10, 2008, 01:34 PM

First this doesn't qualify as not being smart with your money. Using a 401K loan to pay off credit cards can be a good move. But you are encountering one of the pitfalls of doing so. That is changing jobs.

If you leave your job, unless you pay back the loan, it will be considered a withdrawal. So you will have to pay the 10% penalty and taxes on it.

But what you can do, is try and get a short term loan. Pay back the loan, get your distribution from the plan and roll it over into your new employer's plan. Then take out a loan to pay off the short term loan. I've done this at my last two job switches.

caperosa · Nov 10, 2008, 02:04 PM

You answer is really helpful. I though about getting a loan, but it's impossible right now.
Plus, to get a loan, that means I would have to add another expense, so I think it would make sense to include the amount I owe on my car on the loan, so that I would pay just one thing for debt.
I saw the support button, I am strapped right now, but will keep your name in mind for when I can. Really worth it. Thanks !

ScottGem · Nov 10, 2008, 06:59 PM

I said a SHORT TERM loan. You may be able to get a loan for 30-60 days where there wouldn't be any payments. You would just pay a small amount of interest.

caperosa · Nov 10, 2008, 07:41 PM

Oh... OK!

I understand you.

But then, I won't be able to pay for it in 60 days.
I would have to fall on the trap of rolling over the fund and borrow from it again, in order to pay for the short term loan!

See... not a good option for me.
I only got this loan because it seemed to be the best think at the time.

Many thanks!

ScottGem · Nov 11, 2008, 06:56 AM

I don't understand whjat your problem is. Like I said, I've done this at least twice. The advantage of a 401K loan is that whatever interest you pay you are poaying to yourself. The interest amount goes right back into your 401K account. So, essentially you are borrowing the money for free and increasing yout 401K value at the same time.

The only downside of a 401K loan is that, you have to pay it off in full when you leave the job or it becomes a withdrawal.

So you take a short term loan. Maybe have to make one payment until you can get a new 401K loan to pay off the short term loan.

If you don't rollover the 401K you will be paying taxes and a penalty. I don't see how that would be better.

caperosa · Nov 11, 2008, 07:31 AM

Ok , I was not clear.

I will , sometime in the beginning of next year, change job. If I can get a short term loan - will be great! Because I will rollover the 401 (k) and get a loan out of it, so that I can pay the short term.
The key will be getting a short term loan.
You are right when you say it must be a short term loan.
The problem is that I just can't stand where I am working right now. I will go crazy ( if I am not already ) if I stay there. It was the greatest deception I ever had with a company. If I could put up with all that forever, I would just stay there and have the loan paid at each paycheck. I'd rather go through this than work there one more year. But my monthly obligations prohibits me from just leaving, I have to guarantee the same kind of pay before I leave and get the short term ( as suggested) to solve the 401 (k) loan.
At first I though that getting a large sum in loan would solve the problem, but I am afraid I won't get such loan ( I have no collateral for it) and it will take years and years to pay it off.
I am not even sure I will find a bank who will give me a short term loan.
I am simply planning and learning my options, because soon I will do something about it.
I agree with you, having a loan on my 401(K) is better - lower interests and I will be paying myself back. I know of no better option.

ScottGem · Nov 11, 2008, 07:37 AM

If you explain to the bank what you plan is I don't see any reason to not get the loan.

Or maybe you can get a home equity line of credit if you own your home.

Obviously you aren't going to do anything until you find a new job. So you can start looking for the loan at that point. You should have enough time.