- April 7, 2008 at 8:47 pm #257157
It depends. If this a Roth 401K then I highly recommend it. In my case, I was $20,000 dollars in debt, and I maintain a Roth 401K. I had input a couple of grands per year. I decided to pay it off immediately. I cash out with a lot of fear of the consequences of hugh amount of taxes to pay. I learned from my accountant that I didn’t owe a penny because the stock market was doing poorly that I was losing money. Therefore, I had no tax.
If the 401K is with employee earnings directly under your job such as the government. You will have to pay the taxes on those because you didn’t participate in 401K after taxes such as the Roth 401K or Traditional 401K.
Original Message —-
Sent: Tuesday, April 8, 2008 9:36:15 AM
Subject: Re: Budget101.com : Order of Importance?
I wouldn’t recommend it. You get a huge tax if you take it out and not above a certain age. I think it is 40% tax on the 401K or something like that.
You can temporarily put your 401k percentage to 2% or lower if you get serious about paying off debt quickly. I only did this when we got serious in other areas of cutting costs.
What if you have a large amount of debt, yet have $20,000 in retirement. Should you take out the money from a 401K to pay off the debt?
Is there a general rule of thumb about what debt should be paid off in
what order? And where do long-term goals fit in?
For example, if you have:
debt: credit cards, home loan, auto loan
long-term goals: college fund(s), retirement fund, emergency fund
Assume your credit card interest rate is larger than your mortgage
And assume you can only put money in one at a time (a tad unrealistic
I know, but for the sake of argument let’s assume you don’t have
enough to do all at once).
How would you order, from “Pay off or Invest in First” to “Pay Off
Last or Invest in Last”?
Thanks for playing!
Streamwood-Barringt on and Bode
You rock. That’s why Blockbuster’s offering you one month of Blockbuster Total Access, No Cost.
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