anicholson75 Posted March 15, 2007 Report Share Posted March 15, 2007 My husband has around $80k in his 401k. We have around $55k in credit card debt, which we are considering filing BK for. Our ONLY was not to file BK is by cashing out our 401k, but does my husband have to quit his job to be able to do so? Quitting his job is not an option, but I just thought I would ask. THANKS! Link to comment Share on other sites More sharing options...
willingtocope Posted March 15, 2007 Report Share Posted March 15, 2007 if the money in his 401k is ALL money he deposited, then the short answer is NO, he doesn't have to quit. If his company contributed any of the money, then there may be some "vesting" requirements that he must meet before he can withdraw any money they put in.It also may be possible to borrow money from his 401k. It depends on how the plan is set up. He'd need to talk to his administrator to find this out.It's more difficult to simple withdraw all funds from the 401k. Some plans don't allow it. Also, there are severe tax consequences for withdrawing money before age 65... Link to comment Share on other sites More sharing options...
bigjohnstud4200 Posted March 15, 2007 Report Share Posted March 15, 2007 if the money in his 401k is ALL money he deposited, then the short answer is NO, he doesn't have to quit. If his company contributed any of the money, then there may be some "vesting" requirements that he must meet before he can withdraw any money they put in.It also may be possible to borrow money from his 401k. It depends on how the plan is set up. He'd need to talk to his administrator to find this out.It's more difficult to simple withdraw all funds from the 401k. Some plans don't allow it. Also, there are severe tax consequences for withdrawing money before age 65...No expert, but some plans allow for "hardship withdrawls" where you can cash out all of your vested income and not have to pay it back (unlike a loan from your 401k), however, you have to show a serious hardship like pending foreclosers, lawsuits, etc and you can not contribute to 401k again for a year. Some plans allow you to make loans from them, but they must be paid off and if you quit or lose your job you are required to pay the loans off. Link to comment Share on other sites More sharing options...
anicholson75 Posted March 15, 2007 Author Report Share Posted March 15, 2007 To the best of my knowlege, he is fully vested. The company has contributed to the 401k. We currently have a small loan taken out of the 401k currently, so to borrow again is not possible, I don't believe. I suppose I will have him check what kind he has. Thanks! Link to comment Share on other sites More sharing options...
willingtocope Posted March 15, 2007 Report Share Posted March 15, 2007 Just another note. Its a really, really bad idea to trade future security for unsecured debt. Beleive me, I know. We did that. Drained out 401k's to pay CC's, then wound up filing BK anyway.You might want to talk with some BK attorney's in your area. Most will give you a free consultation. (Maybe you can borrow from the 401k just enough to pay them, if that's what you decide to do). BK isn't the greatest thing, but at least it will keep the creditors off you back while you get things under control.Think about it... Link to comment Share on other sites More sharing options...
jq26 Posted March 16, 2007 Report Share Posted March 16, 2007 To the best of my knowlege, he is fully vested. The company has contributed to the 401k. We currently have a small loan taken out of the 401k currently, so to borrow again is not possible, I don't believe. I suppose I will have him check what kind he has. Thanks!I think WillingtoCope is right about being careful not to drain your 401k, but another factor to consider is one's age. If you are young enough and have sufficient income to rebuild again and can accelerated your 401k/IRA pace, then using it to avoid a BK may not be a bad idea. Keep in mind, if you don't solve the underlying debt issue that caused your situation, then you may drain your "BK sheltered" retirement monies and then find yourself in bankruptcy court a few years later anyway. Regarding 401k loans, my company lets me borrow up to 50% of my balance, but I have to pay myself back at prime + 0.75%, which is a 9% loan to myself. They set it high so that funds are paid back that match typical market returns. No fees are paid for borrowing. I can take out as many 401k loans as I want at any time. But if I leave my job, then all loans are to be paid in full immediately or any leftover balances are considered lump sums of ordinary income, subject to 10% penalty and then taxed at my highest federal, state, and local marginal rate (keep in mind 401k funds are deferred income and not savings), which would mean I would lose roughly 40%+ of the unpaid monies to tax and penalties. OUCH. Regarding disbursements, even though my company matches 150% to my 6% (this is pretty generous, they give 9% to my 6%), there is no vesting period so I can take it all out tomorrow if I want to. Just need to go online and ask for it and fill out a form. I don't have to tell them why. But again, since this money is ordinary income, this would be a detrimental tax event due to the roughly 40% whack that would be taken off the top. In your case, that leaves you 7k short to pay the credit cards anyway. And, of course, without any funds left in your 401k, plus possibly a penalty period where you are no longer allowed to contribute or receive matching funds. Not the worst thing in the world if you are in your 20s but not so hot if you are in your late 50s and in the home stretch to retirement.Companies differ in their rules, but that is the general framework. I'd say the BK attorney consultation isn't a bad thing to do before asking for a disbursement of that size. It may just save you $80k. Good luck Link to comment Share on other sites More sharing options...
virtualrealtyhomes Posted March 17, 2007 Report Share Posted March 17, 2007 What I know about 401k's is that you don't have to quit your job to take the money out but if you do take the money out they will penalize big time. Some 401K give you so much time to pay back your 401K and if you dont they penalize you again and again. My mother was in this same situation not to long ago. I had her roll her 401K into a roth ira and then take out the money advoiding all the penalties. See with a roth Ira you dont get your money matched but you earn a higher intrest and there are situations that you can take the money out and not be penalize for example to buy a car, a home, medical reason ect. Now im not suggesting you close your 401k. My mom left her job that was the best situation for her. Everyone I feel should have a roth ira it doesn't cost alot to to start. but the answer to your question is no you dont have to quit your job. You need to go to the human resources department at your work and tell them you want to take money out they will give you the paper work. Link to comment Share on other sites More sharing options...
Guest Gary Craig Posted March 17, 2007 Report Share Posted March 17, 2007 ..... severe tax consequences for withdrawing money...Yes you can, but prepaired to pay taxes. I have borrowered against my IRS twice, you have 60 days to put it back without being penalized.My $00.02 Link to comment Share on other sites More sharing options...
jq26 Posted March 18, 2007 Report Share Posted March 18, 2007 I had her roll her 401K into a roth ira and then take out the money advoiding all the penalties.Roth IRAs are aftertax retirement accounts. 401ks are usually deferred income pre-tax accounts. Rolling 401k funds into a Roth is a realization event that should have been taxable. Link to comment Share on other sites More sharing options...
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