# Cashing out a 401k early...need advice



## Wildwood (Jul 2, 2007)

Due to the instability of things and my desire to be debt free, I decided to cash out my 401k but since I'm not yet 59 1/2, I was told I couldn't do it without a hardship. I knew I couldn't avoid the penalty and interest but had no idea they could refuse me. BTW my boss is on board with it but our broker said no and that it is a federal rule. I'm not sure I believe that.

Anybody have more knowledge than me?


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## Wildwood (Jul 2, 2007)

Well I did a little more digging and it is true...I cannot get my money unless I quit my job or my boss does away with the program.


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## Dave in Ohio (Jun 11, 2002)

You may be able to take out a loan with no penalty and pay it back over time, paying interest to yourself..but there is no easy way to get it out completely,, you may be able to withdraw some amount but it would depend upon the amount you have and the company..I was able to take out $4000, the other year and had to pay taxes and penalty but it was my only choice.


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## Browncoat (Jun 8, 2009)

Is there any way you can roll it over into an IRA? When I switched jobs I rolled my 401(k) over to an IRA. When I went to cash it out, other then the penalties, the only bother I had was my broker telling me how rosy everything is and is going to be in the future. But, he told me it was my money, and I could do with it what I wanted.


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## GREENCOUNTYPETE (Jul 25, 2006)

if you don't work there any more i think you can cash it out without penalty tipicaly same for many pensions . that is risky to have your boss fire you and hire you back next month 

another idea is you can take a loan against it and pay yourself back your kind of debt free in that you ownly owe yourself that way 


having cashed out a 401k and pention this year then done the taxes , be prepaired to take a jump in tax brackets , major ouch and all we did was roll one into a roth ira at the end of a term of employment , you can take that hit over 2 years wich helps keep you stay in your normal tax bracket


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## devittjl (Jun 24, 2004)

You can not cash out with out penalty or taxes even if you leave the job. If you take out a loan against it and leave the job the loan become payable immediately.

Even if you are of age to take money out,unless you it is a Roth you have to pay taxes.

If you are concerned move the money into a Money market acount in the 401K. I am sure there are some bace by treasuries. At least you principle will be safe.


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## Wildwood (Jul 2, 2007)

I can take a loan for half and if I don't pay that back, I get a 1099 which would be fine but I want the whole thing. I'm prepared to pay the penalty and taxes...that's how bad I want to be debt free. My 401k took a hit last time we had a hiccup and I don't want to risk losing that money. I've got a feeling this time may be worse. The interest on my debt has gotten so much higher that I can justify the penalty...plus the peace of mind. I'm a very conservative person but I have no qualms about this whatsoever. I've got the strongest feeling it's the right thing to do. 

I've been on the phone with the broker's office and found that I can quit my job and be rehired the next day (and back on the 401k) to get around the whole thing and if my boss agrees, that is just what I'm going to do. BTW I was told that not only can I not cash it out, I also can't roll it over into anything else until I'm 59 1/2. 

I'd appreciate any prayers or good thoughts anyone can spare to help me make this happen and quickly!


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## Callieslamb (Feb 27, 2007)

Is this new? We have cashed ours out on several occasions - and bought precious metals. We have never had any trouble doing it.


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## Wildwood (Jul 2, 2007)

It may be. A co-worker cashed hers out a few years back with no problem. Well actually she got a loan but they let her have the whole thing. She didn't repay it and got a 1099.

I did some more research after my first post and from what I found, what they told me was true. I don't know if being self-employed would make a difference.


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## Explorer (Dec 2, 2003)

Slightly off topic. I just received notice that I am required to take about a 5% distribution this year (70 1/2). The good news it is based upon my living another 27 years.


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## where I want to (Oct 28, 2008)

Is the problem matching employer contributions? But I can't imagine that you can not withdrawal your own contributions any time you want.


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## AngieM2 (May 10, 2002)

When I check mine out, I can take the amount I put in for downpayment on a house, medical, schooling or proving hardship... if taken out one cannot contribute again for a year.

About 1990, same company I pulled out about 800 to make a payment on my parents taxes, and since I was on their land, I got a paper saying I was behind and needed that to keep me up to date to keep from losing my home. (which is rather true, as if they didn't pay, I'd not have a place to live).

I am pretty sure that you can borrow against it as others have mentioned. Low percentage rate, paid to your acct.


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## manygoatsnmore (Feb 12, 2005)

What debts are you trying to pay off? Credit cards with high interest? ARM? Can you refi your home to a low interest rate, and pay off any cards along with it rather than taking the hit on your 401k, and put the 401k into a cash fund to keep it stable?


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## Patt (May 18, 2003)

We cashed ours out last year and yes you do have to quit your job to do so. My husband was shocked that he had to go to that length to get his own money. He had already quit as a full time employee and was only on the rolls in case they needed some temp work done. 

I'll be honest I fully expect the government will take them over, it has been done in other countries and they can't keep limping SS along forever. I may very well be overly paranoid about it but the money obviously is not ours if we can't cash it out when we need it.


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## whodunit (Mar 29, 2004)

FWIW, Dave Ramsey advises against cashing in a retirement plan to pay off debt unless you are in foreclosure. Otherwise, stop fully funding it and find the money to pay off debt from your budget or a second job.


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## Narshalla (Sep 11, 2008)

whodunit said:


> FWIW, Dave Ramsey advises against cashing in a retirement plan to pay off debt unless you are in foreclosure. Otherwise, stop fully funding it and find the money to pay off debt from your budget or a second job.


This is very true, and I agree with him.

That said, if an adult chooses to make a financial choice that I view as inadvisable, it's none of my business, especially if this is their own money they are using (which in this case, it is.)

What concerns me more is the idea that a person can no longer access some of their own money; the way the rules have changed -- and the fact that there was no announcement of the change that I have heard of -- quite frankly, I find this disturbing.


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## rxkeith (Apr 13, 2009)

we are in the same situation with my employer. only way to get our money, OUR money is to quit our jobs for a 30 day minimum, and then reapply. so the plan is to quit, move back to our farm in da U.P. and get some work done there, to position ourselves for the melt down of the dollar thats predicted by the end of 2012. if there is a melt down, we'll hunker down and wait it out (we hope). if there is no melt down we will have enjoyed a nearly 2 year break from the rat race, working casual or on call for our current or future employer.
there is some anxiety on my part about making such a radical change. my wife on the other hand says to just look at it as a big adventure.

what is hard to swallow, is that so many things that we take for granted could just change or disappear in a relatively short period of time. you don't want to believe it, but the signs are there. ignore them at your own risk.
we are living in interesting times.


keith


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## Wildwood (Jul 2, 2007)

Patt said:


> We cashed ours out last year and yes you do have to quit your job to do so. My husband was shocked that he had to go to that length to get his own money. He had already quit as a full time employee and was only on the rolls in case they needed some temp work done.
> 
> I'll be honest I fully expect the government will take them over, it has been done in other countries and they can't keep limping SS along forever. I may very well be overly paranoid about it but the money obviously is not ours if we can't cash it out when we need it.


This is my feeling also. It's my money and I want it out while I can still get it. 

My home is paid for and I will not risk it. Without the crippling interest, that money will easily be replaced in a few years but will not be put back in a 401k for obvious reasons. My employer does contribute half and so I will continue to contribute the minimum amount since I'm not many years from 59 1/2...not that I have any faith they won't change the rules by then. I don't mind gambling with a small amount but refuse to keep risking my money when it can accomplish so much good for me. After so many of us lost such big chunks in 2008, I can't believe there aren't more doing the same thing. Interest and penalties are nothing compared to what was lost by many that I know.


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## Explorer (Dec 2, 2003)

When I retired at 55 I transfered my IRA to a stock broker where I could select what was the investments. In the last ten years I have taken everything out, $, that I had invested a little each year. Today after all my withdrawals, I still have over four times my $ amount of 15 years ago.

The gov't will take private pensions before that take IRA's.


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## kmam10 (Aug 5, 2007)

The chances of the government taking 401k accounts is pretty slim. In the countries where this has been done, it is actually a pension account they are taking, similar to social security here but handled differently with the employees contributing, at least the ones I know about. 

In exchange for allowing your money to grow (hopefully) tax free until you retire and need it, there are rules in place. The quitting and then getting re-hired the next day thing sounds a little dicey to me. If I were the employer I'd worry about someone considering it fraud.

If this is to get out of debt, go with the loan and be safe. Once you get out of debt start saving for retirement again. Chances are pretty good things will limp along one way or another and you will need it.


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## zant (Dec 1, 2005)

Taxes would be 40%,I believe....quitting and going back just to get 401 will raise many flags at KGB headquarters......always get advice from a REAL tax attorney...


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## Explorer (Dec 2, 2003)

When you take money out of a IRA or 401 it is taxed as ordinary income for the FED and State, if the state has income tax.


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## Patt (May 18, 2003)

The company that has your 401K will take out the taxes. You pay a 10% penalty and then are taxed at whatever income bracket you are in.


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## Explorer (Dec 2, 2003)

Patt said:


> The company that has your 401K will take out the taxes. You pay a 10% penalty and then are taxed at whatever income bracket you are in.


How do they know your tax rate? I can see the 10% penalty rate. I tell my holder how much to withhold and they do not care if it is under or over. Only you are responsible to the IRS and then you have until the next to pay the proper amount.


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## Patt (May 18, 2003)

I don't know, I just know when they did ours they sent us a check for what was left after the penalty and taxes and it came out right when I did our taxes this year. I assume they got it from his employer.


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## Wildwood (Jul 2, 2007)

Thanks everyone for the feedback....much appreciated!


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## stamphappy (Jul 29, 2010)

I no longer work for my employer and I cashed out my 401K last week. 

20% went to the Fed Govt paid directly by prior employer. As explained to my by Mercer this is the rate established by the Fed that everyone who cashes out their 401k is assessed. If I wanted, I could have had more (but not less) sent to the Fed Govt. At tax time next year, depending on my tax bracket, I may need to pay more or will get some back. 

Additionally at tax time next year, I will be charged a 10% penalty by the Fed. 

Finally, my prior employer said I'd be sent a 1099 next year at tax time. 

Taking the money out was very simple and easy, but again, I no longer work for this employer.


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## Laura Zone 5 (Jan 13, 2010)

Wildwood said:


> Due to the instability of things and my desire to be debt free, I decided to cash out my 401k but since I'm not yet 59 1/2, I was told I couldn't do it without a hardship. I knew I couldn't avoid the penalty and interest but had no idea they could refuse me. BTW my boss is on board with it but our broker said no and that it is a federal rule. I'm not sure I believe that.
> 
> Anybody have more knowledge than me?


My dh was fired from his job, and we cashed out what was left of his 401.
Got hit HARD with taxes and penalties. 
Well.....come to find out, my county was declared a 'state of emergency' due to storms that ripped through,and because we sustained damage to our roof, we qualified for a one time "pass on paying taxes" when using our 401. So the 3K I had to pay in taxes was refunded to me.
Old tax guy missed it.
New tax gal, caught it....
Some sort of tax provision if your county has declared itself under a state of emergency due to storms, that you can hit your 401 k, tax free.

Ask your tax person...


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## Explorer (Dec 2, 2003)

That is good to know Stamphappy. I have only made withdrawals and total transfers to a new holder, never cashed out.


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## Wildwood (Jul 2, 2007)

I wanted to update everyone on my final decision in this matter. 

I listened to what everyone had to say and it did influence my decision. I ended up not cashing out my 401k...at least not at this point. Instead I took a loan on it at a good interest rate that will be paid back in a few years and the modest payment will be less than the interest I will save plus I won't have to pay a penalty or income tax on it. 

I really feel good about the decision. By the time I'm able to withdraw my 401k without penalty, I will be completely out of debt and will have the loan repaid. At that point, I plan to roll it over into something else but I will not leave it in the 401k a minute longer than I have to. I just pray it stays safe until then.

It's not that we were hurting financially, it was just that it felt like we were just tredding water and I want that debt gone and quickly!

Thanks to everyone who contributed!


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## seedspreader (Oct 18, 2004)

Yup, I'm investing in the 401K, but I hate the program... It's definitely tilted in favor of the government.


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## Energy Rebel (Jan 22, 2011)

Wildwood said:


> Due to the instability of things and my desire to be debt free, I decided to cash out my 401k but since I'm not yet 59 1/2, I was told I couldn't do it without a hardship. I knew I couldn't avoid the penalty and interest but had no idea they could refuse me. BTW my boss is on board with it but our broker said no and that it is a federal rule. I'm not sure I believe that.
> 
> Anybody have more knowledge than me?


Haven't read all the replies, but the rule on 59 1/2 age and hardship I have firsthand knowledge of.
I paid the 30% penalty at the time, beginning of 2008, and claimed hardship according to IRS' own rules regarding losing your home.
I would have had I not done this as I had also lost my job.
This year I will paying IRS an additional 10% ($327) because the rule is arbitrary and they simply don't agree that 2008-2009 was all that hard.
Read the exceptions and figure out another way to do it or they'll probably stick it to you too.:hammer:


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