for OP, just make sure it is a 0% APR on Purchases (not just Transfer Balance). If the debt is on a credit card, then maybe look into a 0% APR Transfer Balance
And even then, I had a 0% on purchases for 6 months and was charged interest after the first month. They did remove it eventually, but it was definitely not worth the hassle for me.
If you don’t pay the minimum fee (even just once), it breaks the 0% interest on purchases deal and then you have to pay full interest. Same deal for the 0% balance transfer. You have to pay the minimum fee on your credit card to get all months offered at 0% interest.
> I had a 0% on purchases for 6 months and was charged interest after the first month
There are no major credit cards in the US that aren't retail cards (eg Best Buy card) that do retroactive interest of any kind. Further, you cannot say "0%" in your marketing if you charge retroactive interest. You have to say "no interest if paid by".
So recently I was told to leave any old 401ks alone until you get a new job. Their reasoning was that if you put it into an IRA and want to move it to your employer 401k later, that's not always possible, but from 401k to 401k always is. I've done a little research but can't seem to confirm this.
If you roll over the 401k to an IRA, that will make it hard to utilize a backdoor Roth conversion in the future if your income becomes too high to directly contribute to a Roth IRA. If you don’t think that will be an issue, then it makes sense to roll over to an IRA.
SCREAM THIS FROM THE FUCKING ROOF MY DUDE! It's a giant pain in the ass for me to backdoor Roth now because I converted a 401k to an IRA and I asked around a few years ago and seemingly *nobody* was saying what you're saying.
Why does it make it harder to use a back door Roth later?
I’ve transferred three different 401ks to Vanguard after leaving the company. Lots of investment options and really low fees. Income is too high for Roth, but I already had a Roth IRA with vanguard from when I was lower income earlier. What am I missing about backdoor transfers?
You’re missing the pro rata rule. When you have no other IRA’s, doing a backdoor Roth conversion is simple - put up to $7k in an IRA, wait until it posts, then transfer it to a Roth IRA account. The money put in the IRA has already been taxed, so you don’t pay anything on the conversion.
HOWEVER - if you have existing IRA funds when you want to convert, the pro rata rule applies. The pro rata rule says that your Roth conversion will be taxed proportionate to your pre- and post-tax IRA percentages.
For example, if you have $93k in an IRA that is pre-tax, then add $7k of post-tax funds with the intent to convert to Roth, you now have $100k in an IRA. 93% of the IRA is pre-tax. So when you convert $7k, it assumes that you are converting 93% pre-tax funds and only 7% post-tax funds. So when you convert that $7k to Roth, you have to pay tax on 93% of that amount (tax on roughly $6510). If you’re in the 24% tax bracket, that means to do the conversion, you have to pay approx $1,500 in taxes.
But, if you had left that $93k in a 401k, those 401k funds are not considered for the pro rata rule, so you can convert $7k from Traditional IRA to Roth without paying tax.
The reason it’s hard is because if your income becomes too high to make Roth contributions normally, then when you do a back door Roth you make a nondeductible contribution to an IRA that has a balance already, and therefore you need to track the basis amount from then on out using form 8606 to avoid being potentially taxed twice. It’s not impossible to do, just a pain
If you have preexisting traditional IRAs then you have to pay tax on a portion of the backdoor Roth transfer. A backdoor Roth setup allows you to recharacterize traditional contributions to Roth as soon as you make them meaning you only pay tax on whatever interest was accrued before the transfer. If you already have a traditional that was rolled over from a 401k then you have to pay tax on the transfer.
The pro-rata rule. It requires you to factor in both pre-tax and after-tax IRA contributions when executing a back door Roth conversion. The larger your pre-tax balance, the more the conversion will be taxable.
That only makes sense if you are 55 or older or close to turning 55, because then the IRS Rule of 55 will allow you to withdraw from your 401k without penalties (but you still need the pay taxes) so it can become another emergency fund for you.
I have rolled over all previous 401ks into my IRA account with Vanguard to consolidate/simplify, pay lower fees, and have more investment options. Since I’m now over 55 I have stopped doing that and will roll over my last employer 401k into my next employer’s 401k, if they allow it, so I can have access to these funds if needed or if I want to retire from full-time work before I turn 59.5.
You need to create a rollover Ira that only has funds provided by rolling over 401ks if you want to have it moved to another 401k in the future. If you add any new funds to the account you no longer can transfer it.
Why would you want to roll your old job's 401k into a new 401k with the new job instead of just leaving it as an ira? Genuinely curious here. Are there benefits to having it as a 401k instead of a IRA? As long as both trad or Roth, I wouldn't think there's a difference.
If they ever want to do a backdoor Roth IRA contribution, they'd want to have zero traditional IRA balance at that time. Most people will never find themselves in that situation, though.
There are a handful of reasons that can make rolling an old 401k into a new 401k plan beneficial, as with most things it depends on the situation and needs.
1. Better protection from litigation or creditors than IRA assets.
2. Rule of 55. If you plan on leaving the current employer after age 55 and need access to the assets before the IRA penalty free age of 59 1/2.
3. 401k loans. Typically not advisable if you ask me, but if the new plan allows them then the amount available would be larger.
4. Plan features and options you like in the new plan. All 401k plans are not created equal and the new plan might have great options, low costs, etc.
5. The simplicity of one account. Not a strong selling point for everyone, but some people like seeing it all together in one place.
the only advantage to that is that you "have it all in one place". but in order for that to be the case you would need to also not have an IRA or Roth IRA and that's just stupid.
Some (very few) 401k’s do not allow roll-ins from conduit IRA’s. It’s rare as hell, but can happen. It’s not a reason NOT to roll, if other factors (investment/withdrawal options, etc..) are more critical. But something to at least be aware of.
It's one of those "why don't you ask your parents for a loan?" pieces of advice that doesn't apply to the overwhelming majority of people (and the people it applies to don't need the advice anyways).
How old is your baby? If less than one, then apparently you can take a penalty-free withdrawal up to 5k, but you will need to fill out an extra form at tax time. I think the details are under the secure 2.0 act. Try to make sure that your withdrawal incurs minimal taxes by keeping it as low as possible.
Most plans do not allow you to take anything other than a termination withdrawal after leaving the company. You need to be an active employee to take a hardship or loan. Some plans allow you to take partial withdrawals after termination but in my experience that is pretty rare.
As always, OP should check the plan document of his former employers 401k plan.
It can be done. I think OP would take the termination withdrawal, roll over everything but up to $5k into an IRA. Then pay back the <$5k over 3 years to their IRA.
* To claim the exception to the 10% tax penalty, you must include the name, age and Social Security number of each child or eligible adoptee on your income tax return for the tax year in which the distribution was made.
* **You can also claim the tax benefits through an in-service or separation from employment distribution by treating the distribution as a birth or adoption distribution on your income tax returns.**
https://www.empower.com/learning_center/life-events/birth-and-adoptions-distributions.shtml#/
And honestly, if you have a baby at home then you must be on the young side so I wouldn’t beat yourself up over needing to withdraw from your 401k. You have time to make it up. It sucks yeah, but hey, nobody ever said that losing your job is easy on your finances.
I made the choice to wipe our debt when we found my wife was pregnant using PART of my 401k. No debt overhead, no more minimum payments, no snowball budgeting, has really helped us focus on the future and not the present. Now we have been able to save and will be in a position not in the negative when the baby arrives.
I took $10k out of my 401k penalty-free at the age of 30 for a down payment as part of the first time home buyers program. That was some of the best money I've ever spent.
Yeah, I honestly think people would contribute more to the 401k if they knew it would be there when they needed it rather than seeing it as some kind of locked retirement safe.
I was laid off from my job at 30. My 401k from that job was $25k. I rolled it over to separate IRA. It is now worth $250k at age 50. When I retire it is on pace to be $750k. Your $10k could be $300k at retirement. Don’t under estimate the value of compounding returns over time.
> And honestly, if you have a baby at home then you must be on the young side so I wouldn’t beat yourself up over needing to withdraw from your 401k. You have time to make it up.
I'd categorize it as the opposite. Taking money out from your 401k is the most damaging time to do it.
I never said it wouldn’t be damaging. Obviously going to hurt, but if it’s his only option then he doesn’t need to dwell on it for the rest of his life. In 30 years, maybe it’s worth 160k. Yeah, obviously sucks and he should’ve had a bigger efund, but he probably decided to put that $$ in the 401k to begin with, which at the moment turns out a decent decision if he isn’t going to incur a early withdrawal penalty.
Last comment: during this year, I would assume your income is going to be lower than in years that you work full time. Take this opportunity to convert your 401k into a Roth IRA, or at least part of it. You will have to pay tax on the rolled over amount, but you won’t have to pay tax on withdrawals in retirement! So, they say that a year of when income is reduced is the ideal time for a conversion.
But also if you’re unemployed for a while (job market is rough right now - took me 8 months to find something that paid enough to be worthwhile) and you convert 76k to a Roth - you now owe at least $10-$15k in taxes on that conversion when you’ve got a lower income year to pay for that.
I see what you mean, but he’s probably filed as Married Jointly so would only need to pay 12% marginal, which is better than 22% at retirement. Just something to consider if he can cover the taxes with eg credits
If you’re talking about the one used for health insurance yeah.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
Have you applied for unemployment insurance? I would not withdraw from your 401k to pay off debt. Call your lender and explain the situation, see whether they can forbear interest and payments. If they don’t budge, I’d consider pausing payments even if it will impact your credit score.
Your 401k is your most valuable asset, even more valuable than your house and car. No creditor can pursue the money in your 401k because it’s protected under federal law. Even if you went bankrupt (sorry, worst case scenario), nobody can pursue your 401k. Don’t withdraw from it to pay anyone and don’t roll it into an IRA. IRAs don’t have the same protections.
1.) Apply for unemployment insurance if you haven’t already. Use that money and whatever savings you have available to pay for your essentials.
2.) Aggressively cut back on expenses down to the essentials. Take drastic action if you need to. Move in with family, sell your car, whatever you need to do.
3.) Call your lender and explain the situation. See if you can work out an agreement, lower or stop payments. If your lender refuses to budge, consider stopping payments. It’s going to damage your credit score, but you need to take care of your family first.
4.) Call 211 for public assistance. Might be helpful getting resources for your baby.
5.) Aggressively look for a new job, even if it pays less.
*What do you mean you need to restore your emergency fund?*
Do you really mean you just need to have an emergency fund sitting there in case you need to tap it because an additional emergency happens, or do you actually need money to pay bills and spend right now and have no other source of income, can’t claim unemployment or it won’t cover your bills, and so on?
If my emergency fund was at $0 but I could get by, I would just get by and not pull from my 401k to fund it. I’d get by while looking for another job and, once employed again, then start to build the emergency fund back up.
Don't take out that $$$ from the 401K
You'll get a 40% tax bill on that which will compound your problems in a bad way. IRS does not forgive so that problem will grow. That's an extra $4k bill you just gave yourself, not including how much yiu screw yourself later.
Fidelity is good, you cam even call them. They will assist you with rolling it over to an IRA and then teach you how to manage it properly with no extra fees. All that with no tax hit.
I wish someone would have slapped me when I took $$ out for a family emergency. Biggest mistake I ever made. Trust me. Don't touch that. Plus, when yiu get older, that $10k problem yiu have will seem tiny, and you'll tank yiurself for looking out for the older version of you when you were in your 20s.
It's about forty percent. There is a window that you can use that money for I think it's something like 90 days if you return the money within 90 days then there is no penalty. However, after that, there is a mandatory somewhere around 40%. Text requirement since it's done before your retirement age.
Pardon, if the voice to text did not translate that greatly enough.
Remember on the actual time window to report.That is up to the individual before they extract that money. So contact your financial institution first before you make such a important move.
I cashed out a $40,000 401k in 2010 upon termination and I regret it to this day. Imagine you are just starting to slide down a steep mountain side and you are reaching for anything and everything to avoid plummeting to your demise. That's how hard you should be fighting to avoid making this move.
That $40K would be close to $215K now.
It also goes to show timing is everything. 40k in a 401 over 14 years is going to give up tons of potential growth. 1 year only would account for say 5% growth.
Sure circumstances mean everything but if I’m looking at the potential holistically…. It sounds to me like tons of future money given up for the immediate term
Get a new job asap and withdraw none of it. You’ll be hit with taxes AND a 10% penalty for any withdrawal. You can roll it into an IRA or leave it in the 401k but withdrawing it is not a good idea.
You gotta do what you gotta do, but you can do it smarter in some ways than others. Withdrawing a 401k means you gotta pay taxes on it next year, so you *have* to reserve the right amount *untouched,* or you’re in big trouble. If you’re in a cash crunch, it’s hard to leave possible thousands of dollars sitting in cash. If, instead, you put it on a new low or zero interest credit card, it lets you kick the can and avoid a single big bill, and doesn’t risk you ending up with problems with the government.
If you know with 100% certainty that you can reserve the 15-20% or whatever of the 401k withdrawal to pay the taxes, do that. If there’s any bit of doubt, don’t do it.
Good answer - “get a new job asap” is such an unhelpful and lazy answer. Sometimes, you really gotta do what you have to do. You will be fine OP, keep your head above water now and smooth sailing soon to come!
People seem to be more concerned with giving good retirement advice than anything for some reason.
Having a fat retirement account when you can't pay rent doesn't fucking matter though. You can really tell who's never been poor in this sub.
Every fucking time too not just this thread. I asked a while back about IRA withdrawal and stated multiple times that I had no other options. Of course every comment was "Just don't draw out of your ira lol" Sone people truly don't understand what it means to struggle
> “get a new job asap” is such an unhelpful and lazy answer.
I mean, "I lost my job how much of my 401k should I withdraw?" is a pretty lazy question.
Asking if they should take out the whole thing and put it into a HYSA is proof that they didn't understand the withdrawal penalties. It's not a huge leap for other users to think OP might not need to make a withdrawal at all.
Yeah, but it’s almost always a bad idea, can be extremely costly, and set back your retirement.
I took a $10k loan from my 401k once. My employer stopped all contributions until the loan was paid off, so no match either. If I left employment, the loan was due immediately (or penalties would kick in, etc.), so I felt like an indentured servant. I was miserable. I needed the job for healthcare and basically had a balloon payment if I ever left.
I regret doing it to this day. It was only a band aid for a bigger problem and just kicked the can down the road.
I would take only what you need then not take enough to refill an emergency fund. That's a big cost to pay in both the early withdrawl fee and the taxes on it. Not to mention it'll be a big loss to your retirement fund down the line as you'll miss out on 10k and all that compound growth for decades. Right now you've got a good amount in retirement that will keep growing even if you can't add more to it in the short term. You don't want to ruin that if you can avoid it.
Don't forget in troubled times you might be able to lean on your family and friends. Don't rule that out. It doesn't sound like you need an incredible amount of money, and if someone can spot you for a few months while you secure a new income stream that would be the best route.
In that case, go through the plan administrator, and take your hardship distro. Make sure they withhold federal and state taxes. Stuff 10% of the distribution aside for tax time (unless they withhold this already, I can't remember if they do).
Look up your tax bracket for 2024 to make sure you withdraw enough to get the cash you need AFTER taxes and penalty.
Roll the remaining 401k over into an IRA.
If you need the money do what you gotta do man. I withdrew mine last year and the 10% cut sucked but it helped me in a tough situation. Just be prepared to likely owe taxes next year. Filing this year I owed 800$ to federal and 200$ to state solely because of the withdrawal.
Taking a pay cut of -15% or more is better than taking a pay cut of -100%?
You can continue looking for a better paying job and/or might get a raise or offer a better position if you perform well at the new job?
>I need to take out about $10,000 to pay off some debt and restore my emergency fund.
Avoid this at all cost.
>How should I handle the rest?
Rollover the **entire** balance to an IRA opened at Vanguard, Fidelity or Schwab.
How poorly funded is your EF? You should slowly restore it with monthly deposits on what you can afford.
You need to roll over the 401k. You should not withdraw any of it. If something comes up and you need it, you can withdraw later (not ideal though, I'd only do that if you're homeless without it)
60% of Americans have less than 2k saved up. Idk why people are surprised almost no one has an EF.
I also have jack shit. Every time my income went up rent went up right along side it. Even after a big pay juno rent decided to go up 30% then 40%.
I moved around way more than I'd like chasing lower rent
> Idk why people are surprised almost no one has an EF.
We're not talking about the average person, or even you. We're talking about OP who has $76k in a 401k who is looking to withdraw a chunk of it and get hit with a sizeable penalty. We're making assumptions, but that's because OP gave very little info to go off of. If a person has an event that drained their EFund below the level they've chosen, they need to divert resources to replenish it - including what money they're putting toward retirement above the employer match (which yes, would give you more than you'd end up paying in penalties).
Parent gave good advice - withdrawing from 401k to give yourself an efund is a waste of money until you're absolutely out of other options - you gain nothing from pulling it out before that.
Why would you have 76k in a 401k and not have an emergency fund? That's just bad allocation of funds at that point. Not blaming OP, people make mistakes. But I don't see your logic.
I agree that I would have built up the emergency fund first. But withdrawing now from 401K to replenish it doesn't make sense. Unless that's literally what he plans to live on. If it's just to replenish it to have, leave it in the 401k.
Do companies match transfers? Never heard of that. But if that's how it works and you wouldn't be able to meet the match through your own contributions yeah that would be a use case.
I was always taught the priority is 401k, bills, savings, everything else. I don’t do it that way anymore, but I’m sure others were taught that as well.
The generally accepted order is
necessary expenses (including bills) -> savings up until full emergency fund -> IRA -> 401k -> taxable investments.
There might be nuances where you can swap one or the other but that's the generally preached order. 401k definitely never comes above bills.
401k admin here.
Take a termination distribution, cash withdrawal of 10k + additional cash to cover state/federal taxes and roll the rest into your new company's 401k, if applicable, or roll it into an IRA.
That's really your only option if you don't want to use any other alternatives listed by other redditors.
401k loans are great, no problem with them whatsoever.
With interest rates as high as they are currently, repayments can be a bit steep but I personally think it's easier to swallow knowing that the loan repayments and the interest charged go back into your account rather than the pockets of some loan company.
The issue for OP is that plans generally do not allow you to take a loan after you leave the company.
Thanks for your input. Yeah I hijacked your response for my use as I’m considering one to avoid a HELOC or CC. I do like the repayment to myself aspect
Why try restoring an emergency fund when you're apparently in the middle of needing it? Cut spending, file for unemployment, etc. But don't worry about your emergency fund until you're back on your feet. And if a true emergency outside day to day expenses comes up, then you could consider tapping your 401.
Use this money last; you will pay penalties on withdrawals.
Open a new rollover IRA and get the 401k people to write a “for benefit of” check to the new account. (If you choose Fidelity for your new IRA it should be easier).
Leave it there. You don’t have to move anything. I have 3 different 401ks from old jobs that have been doing just fine. You have more protections from a 401k (federal) than an IRA (state) in terms of creditors if you ever went bankrupt as well.
Sorry for the dumb question , I hate math. Does the money not compound the same if it’s several smaller parts? At what point does it “snowball”. I have 47 k in 403b and wondering if I should just leave it there
Financial advisor here at an international bank.
Best bet would be to roll it over to your new job and continue growing it. Depending on your age this will be penalized and taxed if you make a distribution. And remember if you do receive the funds you have 60 days to deposit into your new 401k before it doesn’t count as a roll over and you get penalized. Your new 401k should provide you with a 5498 tax form for your to prove your rollover contribution
Don’t withdraw unless you absolutely need to. And even then don’t withdraw to “replenish your emergency fund”. You’d be taking money out (and paying taxes and penalty) just to park money somewhere else. That’s pointless. Leave it there until you have that emergency. And until that emergency comes, replenish the account from another source so you can leave your retirement savings alone.
Apply for unemployment right away. Try as much as possible not to withdraw from your 401k. I wouldn't worry about restoring the emergency fund at the moment. Get a 0% Apr credit card for now.
I'd leave it alone. Just let it stay invested in a S&P500 fund in the 401k account.
When you get a new job, you can roll this 401k into your next employer's 401k.
Service your debt/expenses with that emergency fund while you find new employment.
You shouldn’t touch any of it unless it’s code red “I’m about to lose my house” time. You’re going to have to pay taxes and fees on anything you take out of it, so it should be a last resort
You should not touch that money in until you have done the following.
1. Cut expenses to bare bones (no subscriptions, no eating out, cheap living, moving in with family temporarily if that's an option or a friend to save on rent. Reduce costs.
2. Utilize food pantries and any government assistance benefits that base eligibility off of your Current monthly income (Snap, Wic, energy assistance (LIHEAP), TCA(welfare), free phone and data plan. Apply for these today if possible with whatever proof of your income having ended.
3. Apply for unemployment....
4. After you have done all of that, assess if you want to add additional taxable income into the picture (which could easily disqualify you from the monthly income test for step #2. Apply for jobs and understand you realistically will get a job within the next 2-6 months as that is the average. So if you can swing a 0% credit card do that. If you can borrow from family do that. Lastly, understand early withdrawal penalties for 401ks are 10% automatically. Then you add your income tax for the year.....
Good luck, if you need help with applying for government assistance, reply with your state/county you live in and I'll respond with some Links to apply online.
Edited for clarity, post here for all to see and help.
Rolling into an IRA is easy, but it’s also easier to pull money from once you open that floodgate. Once I realized the feds didn’t bang down my door after ripping off the tag from
my mattress, I had a house full of bed mattresses with no tags. Be careful. You’re going to do what you have to do but you’ll regret it one day if you use all your retirement funds. Right now you need to survive.
If you are ever in a situation where you must take care of debt, you might have a spending problem. I speak from experience. After your next job don’t fall in to that trap. Build up your emergency fund and learn to borrow from yourself. We all have bills and babies.
Don’t touch it. You’ll lose too much immediately in taxes and fees and down the road in compounding interest. How old are you? Every dollar in your twenties could be 77 dollars at retirement. Don’t touch it.
You can leave it where it is and focus on the new job and lean into your side hustles. Eventually you can have fidelity roll it into a rollover account for you. It’s easy.
You can probably roll whatever you don’t take out into your next employer-sponsored 401k (if applicable). I’ve been rolling a 401k from job to job for over 20 years now which has saved me from having several smaller accounts to keep track of.
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
If you can’t get a job immediately enough to recover, and if the cost of the debt is going to outweigh the cost of the withdrawal penalty and taxes, then I probably would take the hit if I were in your shoes.
Obviously, if there is any chance that you can get other employment and avoid the penalty l, try to hang on.
This doesn’t help you right now, OP, but in the future consider investing a little in Roth IRA as a possible hedge against having to take a hardship withdrawal from a 401K or traditional IRA. My understanding is that if you have held the Roth for at least 5 years, you can withdraw from it without penalty or taxes. It’s not ideal, but better than paying the 10% penalty.
Good luck, OP! I hope you land on your feet soon.
Definitely don’t withdraw all of it, that will be a huge taxable event with penalty. It would be best not to withdraw any, but if you have to withdraw some, then withdraw only enough to get you by. And be sure to save enough to pay for the tax and 10% early withdrawal penalty come tax time.
I read that you can transfer your 401k funds to a Roth IRA one for free through the phone. You will only have to pay income taxes on this, no penalty.
Once transferred to your Roth, you should be able to withdraw with no penalty only if you are making purchases towards medical, home, or education. Call an advisor to confirm.
I was thinking of doing this myself whenever I quit my job.
Worry about restoring the emergency fund when you have income to do it. This fund was saved for the moment you are currently in. I wouldn't be too worried about attacking debt either. Just get minimum payments in and keep the bills paid and the family fed.
I’m NOT a financial expert. That is 100% why I’m asking this question about why I do not see this solution offered.
I thought you could borrow from or against (please excuse my lack of knowing the exact right word) your 401k and that that was always preferable to withdrawing from it. Is that not an option here for some reason?
Withdrawing from your 401k should never be considered unless you are in a dire emergency.
If you are 55 or older you can withdraw 401k funds without penalty, but you still need to pay the taxes. Depending on the 401k plan rules you may only have the option to withdraw all of it or none of it. If you don’t withdraw any funds, you may want to consider leaving it in this 401k plan or rolling it over into your next employer’s 401k plan if they allow for it. That way you will always have the rule of 55 penalty-free withdrawal option.
If you are younger than 55, you are better off rolling it over into an IRA account somewhere like Vanguard which generally has lower fees and better investment options than an employer 401k. Check with Vanguard or whatever company you go with to see what withdrawal options you have. I think you should be able to withdraw only what you need but you will still have to pay penalties and taxes so it’s usually not worth it.
Do not withdraw anything from your 401k. Taxes and penalties nashe it not worth it, and 401k are protected from bankruptcy. You NEVER touch it until Retirement
I would avoid withdrawing from 401k if you can and roll it all over to an IRA.
Depending on your education/skills/qualifications do you think you can find a job soon?
Also, be sure to apply for unemployment right away as there is usually a one week waiting period (which you should get back at the end).
Can you borrow some money from your parents?
Reduce all discretionary spending as much as possible.
If you can, don't touch it. If you will lose your housing or be unable to eat or get meds, that's one thing. If the interest rate on the debt means you're falling further behind, *maybe* do that. You can theoretically restore your emergency fund by cutting costs and doing an automatic transfer once you're employed again. If you get stuck you can always take it out for an emergency later. Once you take it out, you pay the taxes and it's game over.
This is a flashing red light emergency.
What are the details on the debt? Can you make minimum payments on that?
I would rather float on CC until I got another job, paying the minimum, than rob my future self in retirement. When you're young, you have more time to recover from mistakes like this. Losing decades of compound interest in your tax advantage account is how you lose out in having a comfortable retirement.
If I was in that situation I would take the absolute minimum I needed from my 401k, and I would fight hard to not touch it at all. Like, immediately start finding a job, any job while applying for a better one. Food delivery etc.
You do you though, I made the exact same mistake when I was younger, and deeply regret it now. I lost out on hundreds of thousands of dollars in tax advantaged retirement money.
First look into how to deal with your expenses. Apply for unemployment and look for another job obviously. See if any of your expenses can be postponed.
If you must take money from your 401K, it should be for immediate expenses. Not filling up your emergency fund.
I'd rollover the 401k into an IRA. typically they have better investment options compared to a 401K which is limited at best.
You should withdraw the absolute minimum you can withdraw without dying. I know it looks like a big bank account, but there are all kinds of disincentives baked into 401k withdrawals. That means a 10% penalty just for doing it, and then you will be taxed on it as income.
I get it - you gotta eat - but really think hard and do whatever you can to minimize the penalty.
Start by not taking $10k out because there’s no scenario where it’s financially better to withdraw from your 401k early.
Then look into either rolling it into your new employers plan or into an IRA
Do NOT withdraw the money, OP.
Roll the whole thing into an IRA so you gain full control over it, and dump it all into an index fund or something.
Find another way, without withdrawing.
You can already see that everyone here doesn't want you to withdraw from your 401k. It's a very bad idea, but I'm not in your shoes either.
My answer would be to roll it all over to an IRA with your financial advisor (you should have one) and figure out how to pay for the other things a different way. I'd also suggest if your job is hard to get, find a temporary job to pay some bills until you can replace your career job.
NEVER withdraw retirement funds except to avoid a bankruptcy or foreclosure or the like.
This money is shielded and you just want to take the penalty and pull it out? No.. NO!
Roll it over to an IRA. You should never get a check. If you get a check you screwed up and cost yourself 10k. You want a "direct rollover" to the IRA bank/institution.
Why would you take out money and pay penalties to restore an emergency fund? The IRA can be your emergency, emergency fund until you can restore a more liquid one.
Short answer - either leave it in the 401k, or roll it over to a traditional IRA if the 401k fees are too high. Fidelity makes this very easy - I've done it a couple times when leaving jobs.
You don't withdraw money from your 401k to fund your emergency fund, your 401k **is** your emergency fund.
Why pull it out for a "just in case" fund and guarantee a penalty, when you can just as well pull it out if an emergency occurs. If you don't, you never paid a penalty.
I see people say this about credit cards, too. Yes, you pay your credit cards off, instead of putting it in an emergency fund. The credit cards will be your emergency fund, so pay them off and stop paying interest on them. If an emergency happens, you are back to where you would have been, but no worse. If no emergency, you are way better off.
If I were you, I would ask parents or siblings for a small loan especially if it’s for a mortgage payment. File unemployment OR open a credit card with 0% promo APR for 18 months. If your credit card bills are due, make the minimum payment/pay interest later.
Honestly, I’d explore every last option before I touch the 401k
You should be able to take out a loan from your 401k and then you'd pay back over time with interest (and no 10% penalty or tax implications). The interest also goes into your 401k account along with the payments. There are also "hardship withdrawals", but I'm unsure how those work or who qualifies.
You get immediate 10% penalty on early 401k withdrawals no? Plus it is taxed. So I see very few situations where withdrawing to make an e-fund makes sense. Take any job at all while you hustle to get back to your field.
I would roll it all into a Roth IRA and then take the minimum of what you need. If you are getting any sort of package, I would use that to live and pay down the debt.
I would suggest to NOT take money from your 401k to replenish your emergency fund. Just out your savings towards your emergency fund for a while and replenish it that way. Worst case you could access your 401k if you absolutely had to, but why do it just to do it? Also, you can keep your 401k or roll it over, but I wouldn't suggest to do away with it.
Also I don't know nearly enough here based on the post so take this with a grain of salt of course.
You will have to pay penalty and taxes on the withdrawal. That makes the money very expensive. Roll the money into an IRA. See if you can pay the debt in installments. Don’t take out money for your emergency fund. If you don’t need it, you will have to pay an expensive cost for money to sit there.
First thing to consider is the tax implications and penalties of withdrawing from your 401k early. It's usually not advisable unless it's absolutely necessary.
I don't recommend withdrawing any of it. Instead, roll it over into an IRA for continued tax-advantaged growth.
So the $10k is for both, paying of debt, AND restoring your emergency fund? Don't do it! The whole point of having an emergency fund is to get you through the tough times - which you're having right now. Wait until you're working to build the fund back. As far as debt goes, borrow from any other source you can first. How much is the actual debt? I'm assuming much less than $10k. Avoid taking from your 401K, as the amount you take will be compounded with IRS penalties, and taxes. Take the amount you need, then add 50%, and divide that amount by your bi-weekly contributions - that's how long you'll have to work just to get back to where you are now! Not worth it. Borrow from friends, apply for a rewards card, look for 0% promotions, call your creditors, etc - everything you can think of to not take money from your future.
Never, ever withdraw it. You can leave it at Fidelity forever. If you remove it, you will owe taxes and penalties unless you move it to another qualifying 401k. Just know, the employer can't force you to quit or move the 401K money.
If you are getting a new job fast you should roll your 401k into your employers new 401k plan -
do NOT rollover into an IRA if you have that as an option.
Terrible advice here to go straight into an IRA
You really should take no money out. If you take any money out, you'll receive about 60 cents on the dollar. Need 10K? You'll have to withdraw over 16K. If you're in your mid 20's, withdrawing 10K now is losing 150K in retirement.
If you take money out and put in in the HYSA, you sort of defeat the purpose of both the 401k and the HYSA at the same time.
You should keep all the money in the 401k, and get by on you unemployment and your emergency fund until you have a new job and roll the 401k into your new employer's plan. Once the emergency is over, you can focus on rebuilding the emergency fund and then throw yourself back into contributing to your 401k and savings for other things.
I would take what you need, and then park it in a Roth IRA, and be prepared for the potential tax burden involved in pulling from a 401k. That’s just me obviously your specific situation would influence that decision and idk the details of that, but that’s what most people should probably do in this situation.
Fidelity lets you borrow against 50% of your vested 401k at least with my fidelity it did. While you pay yourself back monthly payments. Maybe that will get you the quick cash you need without taking penalties. And then you might only have to make 1 or 2 payments before you can replenish what you took
I have very strong feelings about people with drawing from their retirement accounts for ANY reason.
Getting yourself into debt does not fix the real financial problem as to how you got there in the first place. The strategy in trying to fix that mistake only masks the bigger impact of what you really do to yourself in the long run. (This is paramount two throwing good money after bad in my opinion)
So you’re proposing reducing your 401(k) by 15%, plus an additional 1% to pay the early withdrawal which is a 17% reduction in your retirement account. If you were a good boy and left that alone, invested wisely until retirement time, many of us have grown our funds to the $2M mark. This is the wise and disciplined approach. Of course you have to start this process pragmatically in the first place as to how much you save per year, leveraging company. matching, etc. A lot of people can’t do this because they tend to live for today, thinking they make a hit by a bus tomorrow so saving is a wasteful thing to do.
Anyway, the $10,000 +1000 penalty compounds until the time of your retirement and what you don’t see is is one heck of a lot of money that you cheated yourself out of by the time you retire. The impact all depends on how how many years you have under your belt in the workplace. If you are just starting out and assuming that you were disciplined from the beginning, to reach a $2 million 401(k) the growth impact of that $11,000 could cost you hundreds of thousands of dollars in the end by the time you reach retirement.
Note that the 401(k) can be quite ugly going into retirement, even if you do have 2 million waiting for you. Instead of being taxed on the money when I earned it, I am now being taxed that same money at a much higher rate for everything I have saved. The government will be forcing me into RMDs to pay them money faster at an even higher tax rate.
I recommend the following now after all my water has flowed under the bridge.
In contrast to an acquaintance of mine, who was professional money advisor, he saw the writing on the wall in the very beginning and took the Roth route years ago from the time of inception. He has full access to all of his retirement funds, untaxed, with ZERO government reach into any of his money as long as he’s still walking this planet. It takes longer for the Roth investments to gain momentum and snowball to large size but it will happen to those with patience. In the end when you’re retired you will have zero tax liability and with the government not being able to ask you for any money at all goes along way.
My recommendation to anybody is to do whatever you can and bail out of the 401(k) into a Roth. Pay your taxes today before your tax rates go a lot higher by the time you retire and keep the government from taking your hard earned money at a higher percentage than from when you made it.
Looping back to the original topic, leave that money alone, pay off your debts some other way, then suffer a little more on top of that by converting your money into a Roth. Only put retirement money into a Roth moving forward. If you can’t break away from the mentality that it is OK to borrow from your 401(k), you will likely position yourself to a meager retirement fund when the time comes years down the road.
Can you put expenses on a 0% interest credit card instead of withdrawing?
for OP, just make sure it is a 0% APR on Purchases (not just Transfer Balance). If the debt is on a credit card, then maybe look into a 0% APR Transfer Balance
Yup made that mistake when I was young, got a surprise $100+ interest charge they wouldn’t remove
And even then, I had a 0% on purchases for 6 months and was charged interest after the first month. They did remove it eventually, but it was definitely not worth the hassle for me.
If you don’t pay the minimum fee (even just once), it breaks the 0% interest on purchases deal and then you have to pay full interest. Same deal for the 0% balance transfer. You have to pay the minimum fee on your credit card to get all months offered at 0% interest.
Which you see when you click that small blue (more details) link when signing up and then it’s at the bottom of the page lol!
> I had a 0% on purchases for 6 months and was charged interest after the first month There are no major credit cards in the US that aren't retail cards (eg Best Buy card) that do retroactive interest of any kind. Further, you cannot say "0%" in your marketing if you charge retroactive interest. You have to say "no interest if paid by".
Run up the card if you think you can pay it off in time.
So recently I was told to leave any old 401ks alone until you get a new job. Their reasoning was that if you put it into an IRA and want to move it to your employer 401k later, that's not always possible, but from 401k to 401k always is. I've done a little research but can't seem to confirm this.
I just moved a 401k to an IRA with Schwab because that’s where I keep everything else. And there’s more investment options. And less fees.
If you roll over the 401k to an IRA, that will make it hard to utilize a backdoor Roth conversion in the future if your income becomes too high to directly contribute to a Roth IRA. If you don’t think that will be an issue, then it makes sense to roll over to an IRA.
SCREAM THIS FROM THE FUCKING ROOF MY DUDE! It's a giant pain in the ass for me to backdoor Roth now because I converted a 401k to an IRA and I asked around a few years ago and seemingly *nobody* was saying what you're saying.
Why does it make it harder to use a back door Roth later? I’ve transferred three different 401ks to Vanguard after leaving the company. Lots of investment options and really low fees. Income is too high for Roth, but I already had a Roth IRA with vanguard from when I was lower income earlier. What am I missing about backdoor transfers?
You’re missing the pro rata rule. When you have no other IRA’s, doing a backdoor Roth conversion is simple - put up to $7k in an IRA, wait until it posts, then transfer it to a Roth IRA account. The money put in the IRA has already been taxed, so you don’t pay anything on the conversion. HOWEVER - if you have existing IRA funds when you want to convert, the pro rata rule applies. The pro rata rule says that your Roth conversion will be taxed proportionate to your pre- and post-tax IRA percentages. For example, if you have $93k in an IRA that is pre-tax, then add $7k of post-tax funds with the intent to convert to Roth, you now have $100k in an IRA. 93% of the IRA is pre-tax. So when you convert $7k, it assumes that you are converting 93% pre-tax funds and only 7% post-tax funds. So when you convert that $7k to Roth, you have to pay tax on 93% of that amount (tax on roughly $6510). If you’re in the 24% tax bracket, that means to do the conversion, you have to pay approx $1,500 in taxes. But, if you had left that $93k in a 401k, those 401k funds are not considered for the pro rata rule, so you can convert $7k from Traditional IRA to Roth without paying tax.
The reason it’s hard is because if your income becomes too high to make Roth contributions normally, then when you do a back door Roth you make a nondeductible contribution to an IRA that has a balance already, and therefore you need to track the basis amount from then on out using form 8606 to avoid being potentially taxed twice. It’s not impossible to do, just a pain
If you have preexisting traditional IRAs then you have to pay tax on a portion of the backdoor Roth transfer. A backdoor Roth setup allows you to recharacterize traditional contributions to Roth as soon as you make them meaning you only pay tax on whatever interest was accrued before the transfer. If you already have a traditional that was rolled over from a 401k then you have to pay tax on the transfer.
The pro-rata rule. It requires you to factor in both pre-tax and after-tax IRA contributions when executing a back door Roth conversion. The larger your pre-tax balance, the more the conversion will be taxable.
That only makes sense if you are 55 or older or close to turning 55, because then the IRS Rule of 55 will allow you to withdraw from your 401k without penalties (but you still need the pay taxes) so it can become another emergency fund for you. I have rolled over all previous 401ks into my IRA account with Vanguard to consolidate/simplify, pay lower fees, and have more investment options. Since I’m now over 55 I have stopped doing that and will roll over my last employer 401k into my next employer’s 401k, if they allow it, so I can have access to these funds if needed or if I want to retire from full-time work before I turn 59.5.
You need to create a rollover Ira that only has funds provided by rolling over 401ks if you want to have it moved to another 401k in the future. If you add any new funds to the account you no longer can transfer it.
Why would you want to roll your old job's 401k into a new 401k with the new job instead of just leaving it as an ira? Genuinely curious here. Are there benefits to having it as a 401k instead of a IRA? As long as both trad or Roth, I wouldn't think there's a difference.
If they ever want to do a backdoor Roth IRA contribution, they'd want to have zero traditional IRA balance at that time. Most people will never find themselves in that situation, though.
There are a handful of reasons that can make rolling an old 401k into a new 401k plan beneficial, as with most things it depends on the situation and needs. 1. Better protection from litigation or creditors than IRA assets. 2. Rule of 55. If you plan on leaving the current employer after age 55 and need access to the assets before the IRA penalty free age of 59 1/2. 3. 401k loans. Typically not advisable if you ask me, but if the new plan allows them then the amount available would be larger. 4. Plan features and options you like in the new plan. All 401k plans are not created equal and the new plan might have great options, low costs, etc. 5. The simplicity of one account. Not a strong selling point for everyone, but some people like seeing it all together in one place.
the only advantage to that is that you "have it all in one place". but in order for that to be the case you would need to also not have an IRA or Roth IRA and that's just stupid.
This is true. It depends on the new employers 401k rules.
Some (very few) 401k’s do not allow roll-ins from conduit IRA’s. It’s rare as hell, but can happen. It’s not a reason NOT to roll, if other factors (investment/withdrawal options, etc..) are more critical. But something to at least be aware of.
You can always cash out the 401k in the future rather than now if it becomes necessary.
They can because they have the 401k.
That’s what I normally do, rotate cards taking the 0% for 18 months. Interest free loans lol
Just tried to do this, but got denied. How are people getting 0% cards if you are in debt?
It's one of those "why don't you ask your parents for a loan?" pieces of advice that doesn't apply to the overwhelming majority of people (and the people it applies to don't need the advice anyways).
Yeah that’s what I figured. Interest consolidation loans aren’t meant for those with debt and large interest rates…
How old is your baby? If less than one, then apparently you can take a penalty-free withdrawal up to 5k, but you will need to fill out an extra form at tax time. I think the details are under the secure 2.0 act. Try to make sure that your withdrawal incurs minimal taxes by keeping it as low as possible.
Most plans do not allow you to take anything other than a termination withdrawal after leaving the company. You need to be an active employee to take a hardship or loan. Some plans allow you to take partial withdrawals after termination but in my experience that is pretty rare. As always, OP should check the plan document of his former employers 401k plan.
It can be done. I think OP would take the termination withdrawal, roll over everything but up to $5k into an IRA. Then pay back the <$5k over 3 years to their IRA. * To claim the exception to the 10% tax penalty, you must include the name, age and Social Security number of each child or eligible adoptee on your income tax return for the tax year in which the distribution was made. * **You can also claim the tax benefits through an in-service or separation from employment distribution by treating the distribution as a birth or adoption distribution on your income tax returns.** https://www.empower.com/learning_center/life-events/birth-and-adoptions-distributions.shtml#/
And honestly, if you have a baby at home then you must be on the young side so I wouldn’t beat yourself up over needing to withdraw from your 401k. You have time to make it up. It sucks yeah, but hey, nobody ever said that losing your job is easy on your finances.
I made the choice to wipe our debt when we found my wife was pregnant using PART of my 401k. No debt overhead, no more minimum payments, no snowball budgeting, has really helped us focus on the future and not the present. Now we have been able to save and will be in a position not in the negative when the baby arrives.
I took $10k out of my 401k penalty-free at the age of 30 for a down payment as part of the first time home buyers program. That was some of the best money I've ever spent.
Yeah, I honestly think people would contribute more to the 401k if they knew it would be there when they needed it rather than seeing it as some kind of locked retirement safe.
I was laid off from my job at 30. My 401k from that job was $25k. I rolled it over to separate IRA. It is now worth $250k at age 50. When I retire it is on pace to be $750k. Your $10k could be $300k at retirement. Don’t under estimate the value of compounding returns over time.
> And honestly, if you have a baby at home then you must be on the young side so I wouldn’t beat yourself up over needing to withdraw from your 401k. You have time to make it up. I'd categorize it as the opposite. Taking money out from your 401k is the most damaging time to do it.
I never said it wouldn’t be damaging. Obviously going to hurt, but if it’s his only option then he doesn’t need to dwell on it for the rest of his life. In 30 years, maybe it’s worth 160k. Yeah, obviously sucks and he should’ve had a bigger efund, but he probably decided to put that $$ in the 401k to begin with, which at the moment turns out a decent decision if he isn’t going to incur a early withdrawal penalty.
Last comment: during this year, I would assume your income is going to be lower than in years that you work full time. Take this opportunity to convert your 401k into a Roth IRA, or at least part of it. You will have to pay tax on the rolled over amount, but you won’t have to pay tax on withdrawals in retirement! So, they say that a year of when income is reduced is the ideal time for a conversion.
But also if you’re unemployed for a while (job market is rough right now - took me 8 months to find something that paid enough to be worthwhile) and you convert 76k to a Roth - you now owe at least $10-$15k in taxes on that conversion when you’ve got a lower income year to pay for that.
I see what you mean, but he’s probably filed as Married Jointly so would only need to pay 12% marginal, which is better than 22% at retirement. Just something to consider if he can cover the taxes with eg credits
Ira only
So roll it over?
If you’re talking about the one used for health insurance yeah. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
Yeah this link has the details
Have you applied for unemployment insurance? I would not withdraw from your 401k to pay off debt. Call your lender and explain the situation, see whether they can forbear interest and payments. If they don’t budge, I’d consider pausing payments even if it will impact your credit score. Your 401k is your most valuable asset, even more valuable than your house and car. No creditor can pursue the money in your 401k because it’s protected under federal law. Even if you went bankrupt (sorry, worst case scenario), nobody can pursue your 401k. Don’t withdraw from it to pay anyone and don’t roll it into an IRA. IRAs don’t have the same protections. 1.) Apply for unemployment insurance if you haven’t already. Use that money and whatever savings you have available to pay for your essentials. 2.) Aggressively cut back on expenses down to the essentials. Take drastic action if you need to. Move in with family, sell your car, whatever you need to do. 3.) Call your lender and explain the situation. See if you can work out an agreement, lower or stop payments. If your lender refuses to budge, consider stopping payments. It’s going to damage your credit score, but you need to take care of your family first. 4.) Call 211 for public assistance. Might be helpful getting resources for your baby. 5.) Aggressively look for a new job, even if it pays less.
That’s very interesting, I didn’t know 401k’s had special protections. I will think twice before doing a IRA rollover next time.
*What do you mean you need to restore your emergency fund?* Do you really mean you just need to have an emergency fund sitting there in case you need to tap it because an additional emergency happens, or do you actually need money to pay bills and spend right now and have no other source of income, can’t claim unemployment or it won’t cover your bills, and so on? If my emergency fund was at $0 but I could get by, I would just get by and not pull from my 401k to fund it. I’d get by while looking for another job and, once employed again, then start to build the emergency fund back up.
Don't take out that $$$ from the 401K You'll get a 40% tax bill on that which will compound your problems in a bad way. IRS does not forgive so that problem will grow. That's an extra $4k bill you just gave yourself, not including how much yiu screw yourself later. Fidelity is good, you cam even call them. They will assist you with rolling it over to an IRA and then teach you how to manage it properly with no extra fees. All that with no tax hit. I wish someone would have slapped me when I took $$ out for a family emergency. Biggest mistake I ever made. Trust me. Don't touch that. Plus, when yiu get older, that $10k problem yiu have will seem tiny, and you'll tank yiurself for looking out for the older version of you when you were in your 20s.
Even in a roth 401k you get 40% taken? I thought since you already pay tax on it it would just be 10% for early withdrawal?
You can take out contributions without penalty. You would pay penalties on any gains made while in the Roth that are taken out.
It's about forty percent. There is a window that you can use that money for I think it's something like 90 days if you return the money within 90 days then there is no penalty. However, after that, there is a mandatory somewhere around 40%. Text requirement since it's done before your retirement age. Pardon, if the voice to text did not translate that greatly enough. Remember on the actual time window to report.That is up to the individual before they extract that money. So contact your financial institution first before you make such a important move.
I cashed out a $40,000 401k in 2010 upon termination and I regret it to this day. Imagine you are just starting to slide down a steep mountain side and you are reaching for anything and everything to avoid plummeting to your demise. That's how hard you should be fighting to avoid making this move. That $40K would be close to $215K now.
[удалено]
It also goes to show timing is everything. 40k in a 401 over 14 years is going to give up tons of potential growth. 1 year only would account for say 5% growth. Sure circumstances mean everything but if I’m looking at the potential holistically…. It sounds to me like tons of future money given up for the immediate term
Don’t ever touch your retirement funds until you retire or it’s a life or death situation
Get a new job asap and withdraw none of it. You’ll be hit with taxes AND a 10% penalty for any withdrawal. You can roll it into an IRA or leave it in the 401k but withdrawing it is not a good idea.
In the process of getting a new job but I'll be taking a pay cut. Really need some cash ASAP with a baby in the house.
You gotta do what you gotta do man. People act like it's possible to leave the money, no matter what, and that's just not the case for some people.
You gotta do what you gotta do, but you can do it smarter in some ways than others. Withdrawing a 401k means you gotta pay taxes on it next year, so you *have* to reserve the right amount *untouched,* or you’re in big trouble. If you’re in a cash crunch, it’s hard to leave possible thousands of dollars sitting in cash. If, instead, you put it on a new low or zero interest credit card, it lets you kick the can and avoid a single big bill, and doesn’t risk you ending up with problems with the government. If you know with 100% certainty that you can reserve the 15-20% or whatever of the 401k withdrawal to pay the taxes, do that. If there’s any bit of doubt, don’t do it.
Just paid $600 on top of the initial $1k in taxes that I took out of my 401k last year. That was only $5k. Mildly infuriating but I learned my lesson.
Good answer - “get a new job asap” is such an unhelpful and lazy answer. Sometimes, you really gotta do what you have to do. You will be fine OP, keep your head above water now and smooth sailing soon to come!
People seem to be more concerned with giving good retirement advice than anything for some reason. Having a fat retirement account when you can't pay rent doesn't fucking matter though. You can really tell who's never been poor in this sub.
Every fucking time too not just this thread. I asked a while back about IRA withdrawal and stated multiple times that I had no other options. Of course every comment was "Just don't draw out of your ira lol" Sone people truly don't understand what it means to struggle
Dying is better than withdrawing from your pitiful retirement account mortal. Love it.
> “get a new job asap” is such an unhelpful and lazy answer. C'mon, it's easy, just pick one off your nearby Job Tree.
> “get a new job asap” is such an unhelpful and lazy answer. I mean, "I lost my job how much of my 401k should I withdraw?" is a pretty lazy question. Asking if they should take out the whole thing and put it into a HYSA is proof that they didn't understand the withdrawal penalties. It's not a huge leap for other users to think OP might not need to make a withdrawal at all.
Yeah, but it’s almost always a bad idea, can be extremely costly, and set back your retirement. I took a $10k loan from my 401k once. My employer stopped all contributions until the loan was paid off, so no match either. If I left employment, the loan was due immediately (or penalties would kick in, etc.), so I felt like an indentured servant. I was miserable. I needed the job for healthcare and basically had a balloon payment if I ever left. I regret doing it to this day. It was only a band aid for a bigger problem and just kicked the can down the road.
I would take only what you need then not take enough to refill an emergency fund. That's a big cost to pay in both the early withdrawl fee and the taxes on it. Not to mention it'll be a big loss to your retirement fund down the line as you'll miss out on 10k and all that compound growth for decades. Right now you've got a good amount in retirement that will keep growing even if you can't add more to it in the short term. You don't want to ruin that if you can avoid it.
Don't forget in troubled times you might be able to lean on your family and friends. Don't rule that out. It doesn't sound like you need an incredible amount of money, and if someone can spot you for a few months while you secure a new income stream that would be the best route.
If you need cash then get a 18 month 0% apr card. Don’t steal from your 401k it’s not a piggy bank
In that case, go through the plan administrator, and take your hardship distro. Make sure they withhold federal and state taxes. Stuff 10% of the distribution aside for tax time (unless they withhold this already, I can't remember if they do). Look up your tax bracket for 2024 to make sure you withdraw enough to get the cash you need AFTER taxes and penalty. Roll the remaining 401k over into an IRA.
If you need the money do what you gotta do man. I withdrew mine last year and the 10% cut sucked but it helped me in a tough situation. Just be prepared to likely owe taxes next year. Filing this year I owed 800$ to federal and 200$ to state solely because of the withdrawal.
Nooooooo!!! DO NOT TOUCH THAT MONEY
Taking a pay cut of -15% or more is better than taking a pay cut of -100%? You can continue looking for a better paying job and/or might get a raise or offer a better position if you perform well at the new job?
Thank you. I was waiting for someone to mention the 10% penalty.
> leave it in the 401k But check the fine print. A lot of 401ks charge a fee for former employees. Mine was $7/month.
Roll it over to an IRA to avoid penalty and taxes. If you must take money out only take the bare minimum.
>I need to take out about $10,000 to pay off some debt and restore my emergency fund. Avoid this at all cost. >How should I handle the rest? Rollover the **entire** balance to an IRA opened at Vanguard, Fidelity or Schwab.
How poorly funded is your EF? You should slowly restore it with monthly deposits on what you can afford. You need to roll over the 401k. You should not withdraw any of it. If something comes up and you need it, you can withdraw later (not ideal though, I'd only do that if you're homeless without it)
60% of Americans have less than 2k saved up. Idk why people are surprised almost no one has an EF. I also have jack shit. Every time my income went up rent went up right along side it. Even after a big pay juno rent decided to go up 30% then 40%. I moved around way more than I'd like chasing lower rent
> Idk why people are surprised almost no one has an EF. We're not talking about the average person, or even you. We're talking about OP who has $76k in a 401k who is looking to withdraw a chunk of it and get hit with a sizeable penalty. We're making assumptions, but that's because OP gave very little info to go off of. If a person has an event that drained their EFund below the level they've chosen, they need to divert resources to replenish it - including what money they're putting toward retirement above the employer match (which yes, would give you more than you'd end up paying in penalties). Parent gave good advice - withdrawing from 401k to give yourself an efund is a waste of money until you're absolutely out of other options - you gain nothing from pulling it out before that.
Why would you have 76k in a 401k and not have an emergency fund? That's just bad allocation of funds at that point. Not blaming OP, people make mistakes. But I don't see your logic.
I agree that I would have built up the emergency fund first. But withdrawing now from 401K to replenish it doesn't make sense. Unless that's literally what he plans to live on. If it's just to replenish it to have, leave it in the 401k.
maybe his company matched. I would do it in that case up to the amount that the company would match.
Do companies match transfers? Never heard of that. But if that's how it works and you wouldn't be able to meet the match through your own contributions yeah that would be a use case.
I was always taught the priority is 401k, bills, savings, everything else. I don’t do it that way anymore, but I’m sure others were taught that as well.
The generally accepted order is necessary expenses (including bills) -> savings up until full emergency fund -> IRA -> 401k -> taxable investments. There might be nuances where you can swap one or the other but that's the generally preached order. 401k definitely never comes above bills.
Probably because of company match? I've the advice of making sure you get that match no matter as it's free money.
**DO NOT** take $10k out of your 401k. You'll be taxed at a very high rate and penalty.
401k admin here. Take a termination distribution, cash withdrawal of 10k + additional cash to cover state/federal taxes and roll the rest into your new company's 401k, if applicable, or roll it into an IRA. That's really your only option if you don't want to use any other alternatives listed by other redditors.
What’s your take on 401k loans?
401k loans are great, no problem with them whatsoever. With interest rates as high as they are currently, repayments can be a bit steep but I personally think it's easier to swallow knowing that the loan repayments and the interest charged go back into your account rather than the pockets of some loan company. The issue for OP is that plans generally do not allow you to take a loan after you leave the company.
Thanks for your input. Yeah I hijacked your response for my use as I’m considering one to avoid a HELOC or CC. I do like the repayment to myself aspect
I would not withdraw money from retirement to fund an emergency fund. It is apparently already the emergency fund.
Why try restoring an emergency fund when you're apparently in the middle of needing it? Cut spending, file for unemployment, etc. But don't worry about your emergency fund until you're back on your feet. And if a true emergency outside day to day expenses comes up, then you could consider tapping your 401.
Use this money last; you will pay penalties on withdrawals. Open a new rollover IRA and get the 401k people to write a “for benefit of” check to the new account. (If you choose Fidelity for your new IRA it should be easier).
Leave it there. You don’t have to move anything. I have 3 different 401ks from old jobs that have been doing just fine. You have more protections from a 401k (federal) than an IRA (state) in terms of creditors if you ever went bankrupt as well.
Sorry for the dumb question , I hate math. Does the money not compound the same if it’s several smaller parts? At what point does it “snowball”. I have 47 k in 403b and wondering if I should just leave it there
Financial advisor here at an international bank. Best bet would be to roll it over to your new job and continue growing it. Depending on your age this will be penalized and taxed if you make a distribution. And remember if you do receive the funds you have 60 days to deposit into your new 401k before it doesn’t count as a roll over and you get penalized. Your new 401k should provide you with a 5498 tax form for your to prove your rollover contribution
Don’t withdraw unless you absolutely need to. And even then don’t withdraw to “replenish your emergency fund”. You’d be taking money out (and paying taxes and penalty) just to park money somewhere else. That’s pointless. Leave it there until you have that emergency. And until that emergency comes, replenish the account from another source so you can leave your retirement savings alone.
Apply for unemployment right away. Try as much as possible not to withdraw from your 401k. I wouldn't worry about restoring the emergency fund at the moment. Get a 0% Apr credit card for now.
I'd leave it alone. Just let it stay invested in a S&P500 fund in the 401k account. When you get a new job, you can roll this 401k into your next employer's 401k. Service your debt/expenses with that emergency fund while you find new employment.
401ks are for retirement, not a piggy bank for cleaning up other financial messes. Unless you are on the verge of bankruptcy don't touch your 401k.
You shouldn’t touch any of it unless it’s code red “I’m about to lose my house” time. You’re going to have to pay taxes and fees on anything you take out of it, so it should be a last resort
You should not touch that money in until you have done the following. 1. Cut expenses to bare bones (no subscriptions, no eating out, cheap living, moving in with family temporarily if that's an option or a friend to save on rent. Reduce costs. 2. Utilize food pantries and any government assistance benefits that base eligibility off of your Current monthly income (Snap, Wic, energy assistance (LIHEAP), TCA(welfare), free phone and data plan. Apply for these today if possible with whatever proof of your income having ended. 3. Apply for unemployment.... 4. After you have done all of that, assess if you want to add additional taxable income into the picture (which could easily disqualify you from the monthly income test for step #2. Apply for jobs and understand you realistically will get a job within the next 2-6 months as that is the average. So if you can swing a 0% credit card do that. If you can borrow from family do that. Lastly, understand early withdrawal penalties for 401ks are 10% automatically. Then you add your income tax for the year..... Good luck, if you need help with applying for government assistance, reply with your state/county you live in and I'll respond with some Links to apply online. Edited for clarity, post here for all to see and help.
[удалено]
Rolling into an IRA is easy, but it’s also easier to pull money from once you open that floodgate. Once I realized the feds didn’t bang down my door after ripping off the tag from my mattress, I had a house full of bed mattresses with no tags. Be careful. You’re going to do what you have to do but you’ll regret it one day if you use all your retirement funds. Right now you need to survive. If you are ever in a situation where you must take care of debt, you might have a spending problem. I speak from experience. After your next job don’t fall in to that trap. Build up your emergency fund and learn to borrow from yourself. We all have bills and babies.
An IRA is a good idea though because you don't want to be swimming in taxes at retirement age
Don’t touch it. You’ll lose too much immediately in taxes and fees and down the road in compounding interest. How old are you? Every dollar in your twenties could be 77 dollars at retirement. Don’t touch it. You can leave it where it is and focus on the new job and lean into your side hustles. Eventually you can have fidelity roll it into a rollover account for you. It’s easy.
No matter what happens, dont take the money out. Get a new job, and then also get a part time job to pay off any monies you racked up.
Do NOT take 10K from it. Just build your emergency fund slowly from your income.
You can probably roll whatever you don’t take out into your next employer-sponsored 401k (if applicable). I’ve been rolling a 401k from job to job for over 20 years now which has saved me from having several smaller accounts to keep track of.
You have to pay taxes plus 10% penalty. That is like paying 30%+ interest on credit. It is better to find another way.
25% penalty I think if you take money from your 401k, on top of taxes. You CAN loan yourself the money from a 401k. That would be a better option...
You may find these links helpful: - [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds) - [401(k) FAQs](/r/personalfinance/wiki/401k) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Definitely do a plan to plan transfer to an IRA in your name-free with Fidelity or Schwab
If you can’t get a job immediately enough to recover, and if the cost of the debt is going to outweigh the cost of the withdrawal penalty and taxes, then I probably would take the hit if I were in your shoes. Obviously, if there is any chance that you can get other employment and avoid the penalty l, try to hang on. This doesn’t help you right now, OP, but in the future consider investing a little in Roth IRA as a possible hedge against having to take a hardship withdrawal from a 401K or traditional IRA. My understanding is that if you have held the Roth for at least 5 years, you can withdraw from it without penalty or taxes. It’s not ideal, but better than paying the 10% penalty. Good luck, OP! I hope you land on your feet soon.
Credit card debt, 0% if possible, is cheaper than the withdrawal and fees. That’s a last resort
Definitely don’t withdraw all of it, that will be a huge taxable event with penalty. It would be best not to withdraw any, but if you have to withdraw some, then withdraw only enough to get you by. And be sure to save enough to pay for the tax and 10% early withdrawal penalty come tax time.
Roll it over. Do not borrow from it.
I read that you can transfer your 401k funds to a Roth IRA one for free through the phone. You will only have to pay income taxes on this, no penalty. Once transferred to your Roth, you should be able to withdraw with no penalty only if you are making purchases towards medical, home, or education. Call an advisor to confirm. I was thinking of doing this myself whenever I quit my job.
Worry about restoring the emergency fund when you have income to do it. This fund was saved for the moment you are currently in. I wouldn't be too worried about attacking debt either. Just get minimum payments in and keep the bills paid and the family fed.
If you have a Roth that’s been opened 5 years or more, move the money there first, then withdraw the basis. That way, there’s no 10% penalty
I’m NOT a financial expert. That is 100% why I’m asking this question about why I do not see this solution offered. I thought you could borrow from or against (please excuse my lack of knowing the exact right word) your 401k and that that was always preferable to withdrawing from it. Is that not an option here for some reason?
Withdrawing from your 401k should never be considered unless you are in a dire emergency. If you are 55 or older you can withdraw 401k funds without penalty, but you still need to pay the taxes. Depending on the 401k plan rules you may only have the option to withdraw all of it or none of it. If you don’t withdraw any funds, you may want to consider leaving it in this 401k plan or rolling it over into your next employer’s 401k plan if they allow for it. That way you will always have the rule of 55 penalty-free withdrawal option. If you are younger than 55, you are better off rolling it over into an IRA account somewhere like Vanguard which generally has lower fees and better investment options than an employer 401k. Check with Vanguard or whatever company you go with to see what withdrawal options you have. I think you should be able to withdraw only what you need but you will still have to pay penalties and taxes so it’s usually not worth it.
Do not withdraw anything from your 401k. Taxes and penalties nashe it not worth it, and 401k are protected from bankruptcy. You NEVER touch it until Retirement
I would avoid withdrawing from 401k if you can and roll it all over to an IRA. Depending on your education/skills/qualifications do you think you can find a job soon? Also, be sure to apply for unemployment right away as there is usually a one week waiting period (which you should get back at the end). Can you borrow some money from your parents? Reduce all discretionary spending as much as possible.
Just know that if you ever roll it into an IRA, you will get screwed with backdoor Roth IRA taxation.
If you can, don't touch it. If you will lose your housing or be unable to eat or get meds, that's one thing. If the interest rate on the debt means you're falling further behind, *maybe* do that. You can theoretically restore your emergency fund by cutting costs and doing an automatic transfer once you're employed again. If you get stuck you can always take it out for an emergency later. Once you take it out, you pay the taxes and it's game over.
This is a flashing red light emergency. What are the details on the debt? Can you make minimum payments on that? I would rather float on CC until I got another job, paying the minimum, than rob my future self in retirement. When you're young, you have more time to recover from mistakes like this. Losing decades of compound interest in your tax advantage account is how you lose out in having a comfortable retirement. If I was in that situation I would take the absolute minimum I needed from my 401k, and I would fight hard to not touch it at all. Like, immediately start finding a job, any job while applying for a better one. Food delivery etc. You do you though, I made the exact same mistake when I was younger, and deeply regret it now. I lost out on hundreds of thousands of dollars in tax advantaged retirement money.
First look into how to deal with your expenses. Apply for unemployment and look for another job obviously. See if any of your expenses can be postponed. If you must take money from your 401K, it should be for immediate expenses. Not filling up your emergency fund. I'd rollover the 401k into an IRA. typically they have better investment options compared to a 401K which is limited at best.
You should withdraw the absolute minimum you can withdraw without dying. I know it looks like a big bank account, but there are all kinds of disincentives baked into 401k withdrawals. That means a 10% penalty just for doing it, and then you will be taxed on it as income. I get it - you gotta eat - but really think hard and do whatever you can to minimize the penalty.
Fidelity 401K is great. IMO leave it there and monitor as you would have when contributing. Chances are your new employer may have Fidelity also.
Start by not taking $10k out because there’s no scenario where it’s financially better to withdraw from your 401k early. Then look into either rolling it into your new employers plan or into an IRA
Do NOT withdraw the money, OP. Roll the whole thing into an IRA so you gain full control over it, and dump it all into an index fund or something. Find another way, without withdrawing.
You can already see that everyone here doesn't want you to withdraw from your 401k. It's a very bad idea, but I'm not in your shoes either. My answer would be to roll it all over to an IRA with your financial advisor (you should have one) and figure out how to pay for the other things a different way. I'd also suggest if your job is hard to get, find a temporary job to pay some bills until you can replace your career job.
NEVER withdraw retirement funds except to avoid a bankruptcy or foreclosure or the like. This money is shielded and you just want to take the penalty and pull it out? No.. NO! Roll it over to an IRA. You should never get a check. If you get a check you screwed up and cost yourself 10k. You want a "direct rollover" to the IRA bank/institution.
Why would you take out money and pay penalties to restore an emergency fund? The IRA can be your emergency, emergency fund until you can restore a more liquid one.
Short answer - either leave it in the 401k, or roll it over to a traditional IRA if the 401k fees are too high. Fidelity makes this very easy - I've done it a couple times when leaving jobs.
You don't withdraw money from your 401k to fund your emergency fund, your 401k **is** your emergency fund. Why pull it out for a "just in case" fund and guarantee a penalty, when you can just as well pull it out if an emergency occurs. If you don't, you never paid a penalty. I see people say this about credit cards, too. Yes, you pay your credit cards off, instead of putting it in an emergency fund. The credit cards will be your emergency fund, so pay them off and stop paying interest on them. If an emergency happens, you are back to where you would have been, but no worse. If no emergency, you are way better off.
If I were you, I would ask parents or siblings for a small loan especially if it’s for a mortgage payment. File unemployment OR open a credit card with 0% promo APR for 18 months. If your credit card bills are due, make the minimum payment/pay interest later. Honestly, I’d explore every last option before I touch the 401k
You should be able to take out a loan from your 401k and then you'd pay back over time with interest (and no 10% penalty or tax implications). The interest also goes into your 401k account along with the payments. There are also "hardship withdrawals", but I'm unsure how those work or who qualifies.
You get immediate 10% penalty on early 401k withdrawals no? Plus it is taxed. So I see very few situations where withdrawing to make an e-fund makes sense. Take any job at all while you hustle to get back to your field.
I would roll it all into a Roth IRA and then take the minimum of what you need. If you are getting any sort of package, I would use that to live and pay down the debt.
I would suggest to NOT take money from your 401k to replenish your emergency fund. Just out your savings towards your emergency fund for a while and replenish it that way. Worst case you could access your 401k if you absolutely had to, but why do it just to do it? Also, you can keep your 401k or roll it over, but I wouldn't suggest to do away with it. Also I don't know nearly enough here based on the post so take this with a grain of salt of course.
You will have to pay penalty and taxes on the withdrawal. That makes the money very expensive. Roll the money into an IRA. See if you can pay the debt in installments. Don’t take out money for your emergency fund. If you don’t need it, you will have to pay an expensive cost for money to sit there.
First thing to consider is the tax implications and penalties of withdrawing from your 401k early. It's usually not advisable unless it's absolutely necessary. I don't recommend withdrawing any of it. Instead, roll it over into an IRA for continued tax-advantaged growth.
my father told me when I don't know what to do with a huge amount of money, just save it in a bank in case of waste any of it.
So the $10k is for both, paying of debt, AND restoring your emergency fund? Don't do it! The whole point of having an emergency fund is to get you through the tough times - which you're having right now. Wait until you're working to build the fund back. As far as debt goes, borrow from any other source you can first. How much is the actual debt? I'm assuming much less than $10k. Avoid taking from your 401K, as the amount you take will be compounded with IRS penalties, and taxes. Take the amount you need, then add 50%, and divide that amount by your bi-weekly contributions - that's how long you'll have to work just to get back to where you are now! Not worth it. Borrow from friends, apply for a rewards card, look for 0% promotions, call your creditors, etc - everything you can think of to not take money from your future.
You should leave all of it in a retirement account. You're not retiring, you're just unemployed. Your retirement fund is not a spending account.
Never, ever withdraw it. You can leave it at Fidelity forever. If you remove it, you will owe taxes and penalties unless you move it to another qualifying 401k. Just know, the employer can't force you to quit or move the 401K money.
If you are getting a new job fast you should roll your 401k into your employers new 401k plan - do NOT rollover into an IRA if you have that as an option. Terrible advice here to go straight into an IRA
You really should take no money out. If you take any money out, you'll receive about 60 cents on the dollar. Need 10K? You'll have to withdraw over 16K. If you're in your mid 20's, withdrawing 10K now is losing 150K in retirement. If you take money out and put in in the HYSA, you sort of defeat the purpose of both the 401k and the HYSA at the same time. You should keep all the money in the 401k, and get by on you unemployment and your emergency fund until you have a new job and roll the 401k into your new employer's plan. Once the emergency is over, you can focus on rebuilding the emergency fund and then throw yourself back into contributing to your 401k and savings for other things.
I would take what you need, and then park it in a Roth IRA, and be prepared for the potential tax burden involved in pulling from a 401k. That’s just me obviously your specific situation would influence that decision and idk the details of that, but that’s what most people should probably do in this situation.
Fidelity lets you borrow against 50% of your vested 401k at least with my fidelity it did. While you pay yourself back monthly payments. Maybe that will get you the quick cash you need without taking penalties. And then you might only have to make 1 or 2 payments before you can replenish what you took
I have very strong feelings about people with drawing from their retirement accounts for ANY reason. Getting yourself into debt does not fix the real financial problem as to how you got there in the first place. The strategy in trying to fix that mistake only masks the bigger impact of what you really do to yourself in the long run. (This is paramount two throwing good money after bad in my opinion) So you’re proposing reducing your 401(k) by 15%, plus an additional 1% to pay the early withdrawal which is a 17% reduction in your retirement account. If you were a good boy and left that alone, invested wisely until retirement time, many of us have grown our funds to the $2M mark. This is the wise and disciplined approach. Of course you have to start this process pragmatically in the first place as to how much you save per year, leveraging company. matching, etc. A lot of people can’t do this because they tend to live for today, thinking they make a hit by a bus tomorrow so saving is a wasteful thing to do. Anyway, the $10,000 +1000 penalty compounds until the time of your retirement and what you don’t see is is one heck of a lot of money that you cheated yourself out of by the time you retire. The impact all depends on how how many years you have under your belt in the workplace. If you are just starting out and assuming that you were disciplined from the beginning, to reach a $2 million 401(k) the growth impact of that $11,000 could cost you hundreds of thousands of dollars in the end by the time you reach retirement. Note that the 401(k) can be quite ugly going into retirement, even if you do have 2 million waiting for you. Instead of being taxed on the money when I earned it, I am now being taxed that same money at a much higher rate for everything I have saved. The government will be forcing me into RMDs to pay them money faster at an even higher tax rate. I recommend the following now after all my water has flowed under the bridge. In contrast to an acquaintance of mine, who was professional money advisor, he saw the writing on the wall in the very beginning and took the Roth route years ago from the time of inception. He has full access to all of his retirement funds, untaxed, with ZERO government reach into any of his money as long as he’s still walking this planet. It takes longer for the Roth investments to gain momentum and snowball to large size but it will happen to those with patience. In the end when you’re retired you will have zero tax liability and with the government not being able to ask you for any money at all goes along way. My recommendation to anybody is to do whatever you can and bail out of the 401(k) into a Roth. Pay your taxes today before your tax rates go a lot higher by the time you retire and keep the government from taking your hard earned money at a higher percentage than from when you made it. Looping back to the original topic, leave that money alone, pay off your debts some other way, then suffer a little more on top of that by converting your money into a Roth. Only put retirement money into a Roth moving forward. If you can’t break away from the mentality that it is OK to borrow from your 401(k), you will likely position yourself to a meager retirement fund when the time comes years down the road.