Cash in your 401K! Whoo hoo! Aug 07, 2007 - 08:01 AM
This will probably get me hate mail, and everything I've read about cashing in 401Ks says emphatically not to. But here's the deal: I have $26,000 in a HELOC (Basically a credit card with my house as collateral). I could cash out the 401K and pay it off with room to spare. Now, if you do a google search on "cashing out 401k" nobody, and I mean nobody, recommends doing it. They say there's a 10% early withdrawal penalty, and you get taxed at whatever tax rate you are at. But let me explain something to you: you are not taxed for the full amount in your account, only on the gains. So, it's not 10% of 50,000 (or whatever) just on how much it has increased (ex: $10,000) which would be, in this (fake) example $1,000. If you are at the 28% tax bracket, throw in an additional $2,800 to pay. So $3,800 on a 50k investment. Not chump change, but not financial hari kari either. And let's say your employer matched 2K for every year. After 5 years you got $10,000 in free money, courtesy: your employer. In a way you could see the $3,800 as a minus on the free money, making you up $6,200. Of course, you are mortgaging your retirement money jackass, so just leave it and walk away. But here's my deal: the HELOC was used to purchase a piece of land for $15,000 that is now worth at least $45,000. My land is earning a higher interest than my HELOC, even with the $3,800 hit. Paying off the HELOC will allow me to get any more gains without paying the interest on the loan. This is just an alternative way of looking at finances. I don't know if I will ever touch the 401K, but being laid off gives me one of the few opportuinities to get my mitts on it. I might as well consider all the alternatives, and not automatically turn a blind eye because all the "experts" say to do that. Bush and Co. are advocates of a weak dollar policy, so your money is draining away as we speak. Gas is at a high price, but have you checked the price of a bottle of water lately? Better to watch your money, learn to grow it, be informed and analyze the possibilities.
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