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Thread: Rich---401K question

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    armygf08's Avatar
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    #1

    Rich---401K question

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    My job is going out of business and I have invested in the 401K plan. Before the stock market took a dive, I had a little over $6K in there, but not anymore. I took out a loan and I currently owe $1600. The remaining balance I have in my 401K is $2700. I know that Im going to be taxed for the loan, cause I dont have the money to pay back. I constantly hear people saying never touch your retirement. But for me, being 25, I feel that $2700 is not that much to keep in there, I'd feel different about it if I had that $6k in there. I feel that I could benefit from it more right now cause when my fiance and I get married, we are going to be buying a house right away.

    Is cashing it out something that I really should not do?
    DF: i still think your too good to be with a guy like me but i am thankful everyday that i found you
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    Great question! This decision is a tough one. Do I use the money today or let it grow for tomorrow? I tend to agree with those who advise you to let the money stay in the 401(k) plan for a few reasons. First, you have already seen first hand what taking out the loan on the 401(k) has accomplished. The $1600 loan will actually cost you the taxes on the $1600 plus any interest you had to pay while the loan was out. Now what happens if you take the remaining money out? The $2700 is first taxed as income at 15% to 25% or whatever your marginal income tax may be. Then you get another 10% penalty from the IRS for accessing your retirement money before your age of 59 ½. So already you have a possible 35% of your $2700 going to taxes. I understand that the need for the money is today, but choosing to pay 35% of the $2700 seems less of a good idea. Second, what if that same $2700 remaining is left alone? Assuming 40 years at 8% average growth per year = $58,656. You could have almost $60,000 for your retirement. The question is how much do you “need” the $2700 today. Is it worth a possible $60,000 later on in life?

    Rich Lunsford is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Rich holds the Series 7 and 66 securities licenses. Rich also holds the designations of Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and CHARTERED RETIREMENT PLANNING COUNSELOR (CRPC®).

    Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
    Need some money advice? USAA’s Rich Lunsford is here to help. Whether its investment advice, mortgages, college finances or deployments, he’s your money coach for any question you may have so just “Ask Rich!” Click here to submit your question to CERTIFIED FINANCIAL PLANNER™ Rich Lunsford or participate in the discussion.
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    #3
    I'd leave it in too. It's not that much to save $1600 again, and then you wouldn't lose.

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