I took a 401K withdrawal out when I was getting divorced to pay of my car and get my ex-wife off the title, which she in turn refinanced the house we owned and paid me the equity that was owed to me. But the next year at tax time, guess what? Not only was I $60,000 in debt, but owed $7,500 to the IRS. I needed that like a hole in the head.
So what do I say about 401k withdrawals? Don't do it if at all possible. "Should I take a withdrawal or get a 401K loan?" is one the most asked questions we get. It's understandable you are desperate to hang on to your house and will do anything to avoid having a foreclosure, but I don't think you should do it. You will pay income tax on that money eventually and will probably be hit with a 10 percent penalty for taking the money out before you are 59 1/2. After the money runs out you will probably find yourself right back in the hole. You won't have any more money to take from your 401K and you will most likely fall behind on your mortgage again
A 401K loan can be risky. If you are get laid off you will typically have to repay the loan within a short period of time. With the current economic situation still going strong, there is a chance you may face a layoff. So if you take that loan out and then get laid off and after that you don't have the money to pay back, you will run into a tax problem. The loan will be treated as a withdrawal and you'll have to pay tax and probably a 10% early withdrawal penalty. A loan can also cost you more money because the markets may rally, which they have been doing lately, and if you have a loan out at that time, you will have missed an opportunity to recoup the money you have lost during the down market.
One important fact. The money you have in your 401K and IRA is protected if you ever have to file bankruptcy. You can keep that money no matter what.
If there is anything you can do to NOT take money from 401K please choose that option.
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Showing posts with label 401K Loan. Show all posts
Showing posts with label 401K Loan. Show all posts
Thursday, January 14, 2010
Thursday, January 7, 2010
Should I Take a Loan Out From My 401K to Pay My Mortgage Current?
A 401K loan is no better than a 401K withdrawal when it comes to that scenario. Don't do it. We have discussed taking out loans against your 401K to pay off debt many times before. By taking out a loan means you risk being taxed twice on any funds you withdraw. If you should get laid off you are at risk of having to pay back the loan in a couple of months. With the current economic situation there is still potential for people losing their jobs. You could very well be one of them.
So if you decide to take out a 401K loan and should get laid off and can't pay it back fairly quickly you will run into a tax problem. The loan will then be treated as a withdrawal and you will be stuck paying the 10% early withdrawal penalty (if you are under 59 1/2) and will also have the money taxed as income.
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So if you decide to take out a 401K loan and should get laid off and can't pay it back fairly quickly you will run into a tax problem. The loan will then be treated as a withdrawal and you will be stuck paying the 10% early withdrawal penalty (if you are under 59 1/2) and will also have the money taxed as income.
For answers to all your financial questions check us out. Subscribe so you never miss the boat.
Tuesday, June 2, 2009
Financial Motivational Quote June 2, 2009
"Modern man drives a mortgaged car over a bond financed highway on credit card gas."- Earl Wilson
Monday, June 1, 2009
If I Don't Take Out A 401K Loan To Pay Off My Debt, How Can I Pay Off My Credit Card Debt? Continued...
People have been asking about taking out 401K loans to pay off their credit card debt and how to find extra money to pay off their debt. Suggestions keep coming in and we are sharing another group of tips on how to save money and put the extra found dough towards your debt.
- Have a garage sale.
- Sell items to pawn shops. Remember you may receive less than fifty percent of the item you are pawning.
- Sell items using a consignment shop.
- Turn your hobby into a money making business. Website design, cleaning, landscaping, cooking and baking, making birdhouses, whatever floats your boat. Do what you like to do and make money doing it.
- If you have children who work get them to contribute to the household.
- Place an add in free classifieds in local community newspapers to sell things.
- Sell items on eBay or Craigslist.
- Get a second job. Even small jobs can help you raise the money you need.
- Ask for a raise or more hours at work.
- Return things you bought and don't need. Get the cash back if you still have the receipt. If you don't have the receipt get store credit to but things you do need.
With the economy in it's current state you may not want to take out a 401K loan right now. If you get laid off you will have to pay taxes on the entire amount you withdrew. Instead find ways to cut back and pay off the debt slowly, but surely. It will pay off (no pun intended) in the long run.
Have you paid off credit card debt by cutting back? Let us hear from you.
Should I Take Out A 401K Loan To Pay Off My Credit Cards?
Should I Stop Contributing To My 401K If I Want To Pay Off My Credit Cards?
Should I Stop Contributing to My 401K To Pay Off My Credit Cards?
Reward Cards May Help You Save.
- Have a garage sale.
- Sell items to pawn shops. Remember you may receive less than fifty percent of the item you are pawning.
- Sell items using a consignment shop.
- Turn your hobby into a money making business. Website design, cleaning, landscaping, cooking and baking, making birdhouses, whatever floats your boat. Do what you like to do and make money doing it.
- If you have children who work get them to contribute to the household.
- Place an add in free classifieds in local community newspapers to sell things.
- Sell items on eBay or Craigslist.
- Get a second job. Even small jobs can help you raise the money you need.
- Ask for a raise or more hours at work.
- Return things you bought and don't need. Get the cash back if you still have the receipt. If you don't have the receipt get store credit to but things you do need.
With the economy in it's current state you may not want to take out a 401K loan right now. If you get laid off you will have to pay taxes on the entire amount you withdrew. Instead find ways to cut back and pay off the debt slowly, but surely. It will pay off (no pun intended) in the long run.
Have you paid off credit card debt by cutting back? Let us hear from you.
Should I Take Out A 401K Loan To Pay Off My Credit Cards?
Should I Stop Contributing To My 401K If I Want To Pay Off My Credit Cards?
Should I Stop Contributing to My 401K To Pay Off My Credit Cards?
Reward Cards May Help You Save.
Sunday, May 31, 2009
If I Don't Take Out A 401K Loan To Pay Off My Debt Where Else Can I Get Money? Continued...
People are depleting their already ravaged 401K's and retirement accounts to just get buy or pay down their credit card debt. I want you to remember that your retirement savings is extremely important and taking it out to pay off debt can one day leave you with nothing. Social security is looking like it is going to run out 4 years earlier than expected and you probably won't be with a company long enough to have a pension. So, what you put in your in your 401K or IRA might be all you have one day.
There are ways to cut back and put the difference of what you save towards your credit cards. With some these of things you might say, "I am not doing without that", but one day you might have to say, "I have to do without my medication or food" for that matter. It is better to do without certain things temporarily now than later.
- Raise the deductible on you car insurance.
- If you have insurance through your credit cards, cancel it. Insurance through credit card companies is usually over priced.
- If you feel you need life insurance, which I do recommend, shop around with local insurance agents.
- Cancel any insurance against credit card theft or loss you may have purchased. This insurance is not necessary. You are only liable for the first $50 used on a card after you report it stolen or missing.
- Reduce the minutes on your cell phone plan and try not to us the phone as much. If you consistently use more minutes than your plan allows, consider changing your plan with more minutes to avoid high charges for out of plan minutes.
- Cancel your land line and use your cell as your main phone.
- Block texting on your cell phone. Texting fees can really add up.
- Cancel you long distance service. Get a calling card.
- Turn off lights when not in the room.
- Lower the heat during the day when you are away at work and at night when you are asleep.
- Turn your thermostat down just one or two degrees when you are home.
- Turn down the thermostat on your water heater by one or two degrees.
- Do laundry with cold water instead of hot.
- Open a window instead of turning on the air conditioner.
- Cancel your cable service or reduce the number of premium channels you pay for.
- Cancel your Internet account and sign up for a free service or a company that pays you to surf or go to the library when you need to go online.
- Use a free email service like Gmail or Yahoo.
- Turn on just the light next to you instead of turning on all the lights in a room. Be sure to turn it off when you leave the room.
- Turn off computers when you are not using them.
- Turn off the water while you are brushing your teeth.
Doing some these things really sucks, but it may be necessary. At on time I had $60,000 in credit card debt. I was never late on a payment and paid back the entire amount. These were some of the very things I did to get the debt paid off. I can't imagine going back to dial up for Internet use, but if I had to do it again to preserve my credit and my retirement I would definitely do it again.
Have you paid off credit card debt by cutting back? Let us hear from you.
Should I Take Out A 401K Loan To Pay Off My Credit Cards?
Should I Stop Contributing To My 401K If I Want To Pay Off My Credit Cards?
Should I Stop Contributing to My 401K To Pay Off My Credit Cards?
Reward Cards May Help You Save.
There are ways to cut back and put the difference of what you save towards your credit cards. With some these of things you might say, "I am not doing without that", but one day you might have to say, "I have to do without my medication or food" for that matter. It is better to do without certain things temporarily now than later.
- Raise the deductible on you car insurance.
- If you have insurance through your credit cards, cancel it. Insurance through credit card companies is usually over priced.
- If you feel you need life insurance, which I do recommend, shop around with local insurance agents.
- Cancel any insurance against credit card theft or loss you may have purchased. This insurance is not necessary. You are only liable for the first $50 used on a card after you report it stolen or missing.
- Reduce the minutes on your cell phone plan and try not to us the phone as much. If you consistently use more minutes than your plan allows, consider changing your plan with more minutes to avoid high charges for out of plan minutes.
- Cancel your land line and use your cell as your main phone.
- Block texting on your cell phone. Texting fees can really add up.
- Cancel you long distance service. Get a calling card.
- Turn off lights when not in the room.
- Lower the heat during the day when you are away at work and at night when you are asleep.
- Turn your thermostat down just one or two degrees when you are home.
- Turn down the thermostat on your water heater by one or two degrees.
- Do laundry with cold water instead of hot.
- Open a window instead of turning on the air conditioner.
- Cancel your cable service or reduce the number of premium channels you pay for.
- Cancel your Internet account and sign up for a free service or a company that pays you to surf or go to the library when you need to go online.
- Use a free email service like Gmail or Yahoo.
- Turn on just the light next to you instead of turning on all the lights in a room. Be sure to turn it off when you leave the room.
- Turn off computers when you are not using them.
- Turn off the water while you are brushing your teeth.
Doing some these things really sucks, but it may be necessary. At on time I had $60,000 in credit card debt. I was never late on a payment and paid back the entire amount. These were some of the very things I did to get the debt paid off. I can't imagine going back to dial up for Internet use, but if I had to do it again to preserve my credit and my retirement I would definitely do it again.
Have you paid off credit card debt by cutting back? Let us hear from you.
Should I Take Out A 401K Loan To Pay Off My Credit Cards?
Should I Stop Contributing To My 401K If I Want To Pay Off My Credit Cards?
Should I Stop Contributing to My 401K To Pay Off My Credit Cards?
Reward Cards May Help You Save.
If I Don't Take Out A 401K Loan To Pay Off My Debt Where Else Can I Get Money?
The question of using your 401K to pay off your credit card debt is related to many topics we have discussed before including: keeping your house out of foreclosure to paying your credit cards on time. I have suggested actions such as renting rooms out or getting a second job. Having debt can be very stressful, but if you want to get out from under your mountain of debt, you may have to do things you don't want to do. You need to consider what is more stressful? Making those payments forever or biting the bullet and cut back for a while. Here are some additional ideas for finding extra money to pay towards your credit card debt. They may make small dents in your credit card debt, but they will really add up over time.
- Sell any investments you have
- Sell other assets, a boat, comic book collection, extra car, jewelry, etc. Anything that you can trade for cash.
- If you have child support payments see if you can get your obligations reduced.
- Use your tax refund or alimony payment.
- Transfer your credit card balances to a card with a low interest rate.
- If you have a card with an annual fee see if the credit card company will be willing to waive it.
- Borrower money from family or friends. But remember you need to pay them back too. You can really ruin your relationship with them over something like this.
- Get rid of your overdraft protection on your bank accounts. This will help you from getting into more debt.
- Shred any cash advance checks you have received from your credit card company. If you haven't paid the balance off when the interest adjusts, it will make things worse.
- Don't use ATM's at banks other than your own. ATM fees can really add up.
- Put away your credit cards so you are not tempted to charge on them.
- Increase the number of dependents you claim on your W-2 at work. But be careful. You can end up owing money come tax time if you listed too many dependents.
- Start a budget and watch where your money is going. You may find other ways to cut back.
- See if you qualify for assistance from a local food pantry or other charities.
- Apply for public assistance if you are out of work or disabled. This money will not be enough to pay off your debt, but it may give extra money to put food on the table.
- Some rewards cards offer cash back incentives. See if you have any cash due and put towards your credit card debt rather than spend it.
- Stop taking cash advances on your credit cards. The interest and fees will make things worse.
It's not that hard to be creative. Put your mind to it. There is always a way to cut back somewhere.
Have you paid your debt off by finding ways to cut back? Let us hear from you. Share your tips and let's give some folks some ideas.
Should I Take Out A 401K Loan To Pay Off My Credit Cards?
Should I Stop Contributing To My 401K If I Want To Pay Off My Credit Cards?
Should I Stop Contributing to My 401K To Pay Off My Credit Cards?
Reward Cards May Help You Save.
- Sell any investments you have
- Sell other assets, a boat, comic book collection, extra car, jewelry, etc. Anything that you can trade for cash.
- If you have child support payments see if you can get your obligations reduced.
- Use your tax refund or alimony payment.
- Transfer your credit card balances to a card with a low interest rate.
- If you have a card with an annual fee see if the credit card company will be willing to waive it.
- Borrower money from family or friends. But remember you need to pay them back too. You can really ruin your relationship with them over something like this.
- Get rid of your overdraft protection on your bank accounts. This will help you from getting into more debt.
- Shred any cash advance checks you have received from your credit card company. If you haven't paid the balance off when the interest adjusts, it will make things worse.
- Don't use ATM's at banks other than your own. ATM fees can really add up.
- Put away your credit cards so you are not tempted to charge on them.
- Increase the number of dependents you claim on your W-2 at work. But be careful. You can end up owing money come tax time if you listed too many dependents.
- Start a budget and watch where your money is going. You may find other ways to cut back.
- See if you qualify for assistance from a local food pantry or other charities.
- Apply for public assistance if you are out of work or disabled. This money will not be enough to pay off your debt, but it may give extra money to put food on the table.
- Some rewards cards offer cash back incentives. See if you have any cash due and put towards your credit card debt rather than spend it.
- Stop taking cash advances on your credit cards. The interest and fees will make things worse.
It's not that hard to be creative. Put your mind to it. There is always a way to cut back somewhere.
Have you paid your debt off by finding ways to cut back? Let us hear from you. Share your tips and let's give some folks some ideas.
Should I Take Out A 401K Loan To Pay Off My Credit Cards?
Should I Stop Contributing To My 401K If I Want To Pay Off My Credit Cards?
Should I Stop Contributing to My 401K To Pay Off My Credit Cards?
Reward Cards May Help You Save.
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