Financial Experts - 401K Question

[Maikeru-sama]

I just had a question about my 401k that I had with my previous employer.

I am going to be starting a new job soon (actually working for a member here) and this job will not allow me to roll my 401k from my previous employer over.

I was just trying to get some type of advice as to what to do with it. Some have said to put it into an IRA or something like that. To be honest, I am thinking about cashing it out and using all of it to pay off my Student Loan Balance as paying off debt is another form of saving money in the future.

Thoughts?

 

[Route 66]

I would think now would be the worst time to sell anything. It would be one thing to sell it and pay off your loan and then use that amount to add to your new 401k deductions. But the question is are you disciplined enough to do that?

Besides, the value has dropped quite a bit and I would wait for awhile for it to rebound back to some value in its previous state before cashing out.

 

[WoodysGirl]

The one thing I wish I had the discipline to do is NOT cash out my 401k. Seems every job I've ever had, I've cashed out my 401k after I left. I'm still fairly young, but I'm also looking at my parents and grandparents and their ability to maintain while in retirement. I don't want to struggle like that.

However, student loans are a PITA.

I'd consider doing one of two things:

roll half into an IRA and use the other half to pay down debt.

-or-

roll 1/3 into an IRA, use 1/3 to pay down debt, and bank the last 1/3.

Disclaimer: Not a financial expert, nor have I ever had the amount of funds in a 401k to do either of those options.

 

[Maikeru-sama]

Thanks for the responses.

I have alot of time to think about it. I am just tired of looking at my student loan balance.

 

[WoodysGirl]

Thanks for the responses.

I have alot of time to think about it. I am just tired of looking at my student loan balance.

Put them on forebearance and then you won't have to look at it for a year.

 

[Maikeru-sama]

Put them on forebearance and then you won't have to look at it for a year.

:laugh2:

But seriously, I personally think you should only do that when you can't pay.

I have been paying the minimum every month since I graduated in 2001. After I paid my car off a 1 year in a half about 3 years ago, I was supposed to throw alot of my paycheck towards my loan, but stuff just happened.

Once my loan is paid off, I will be 100% debt free.

 

[Nors]

Too bad you can't roll into their 401K - Then you could take a loan for 1/2 out and pay yourself back.

Cash out you get hit with a 10% penalty and you have to pay taxes on it. You will lose at least 40% of what you have to cash out. Not to mention market at a low point.

Plan B - put it into an IRA, Set up a new 401K and just continue to paydown student loan - life aint always fare. Don't mortgage your future savings for ST debt paydowns.

 

[theebs]

Thanks for the responses.

I have alot of time to think about it. I am just tired of looking at my student loan balance.

My student loan balance haunts me 24-7.

I am stuck with it for at least another 2 years though.

Put them on forebearance and then you won't have to look at it for a year.

this is the route I have to go and it is hell. Watching interest accumulate and the debt increase when you are getting no value is the biggest kick in the pants ever.

 

[Maikeru-sama]

My student loan balance haunts me 24-7.

I am stuck with it for at least another 2 years though.



this is the route I have to go and it is hell. Watching interest accumulate and the debt increase when you are getting no value is the biggest kick in the pants ever.

Yeah, if I didn't use my 401K money to pay it off, It would probably take me about that long to pay it off. However, I am going to start working towards my MBA or another Master's degree, so don't want to wait that long.

 

[Nors]

You knew you had to pay it back when you signed for it? This is why we are in a financial collapse - many want the fruit of borrowing but don't want to pay off the debts associated.

Continue with the 401k

 

[Kangaroo]

Wait a minute be careful some places give you so long and you have to open a new account with them or roll it over to another company.

You better call up the company manging the previous 401k and find out the rules if you have to roll it over you can roll it over to your own 401k plan.

Fidelity, Charles Schwab or many others

 

[Maikeru-sama]

Wait a minute be careful some places give you so long and you have to open a new account with them or roll it over to another company.

You better call up the company manging the previous 401k and find out the rules if you have to roll it over you can roll it over to your own 401k plan.

Fidelity, Charles Schwab or many others

It is with Fidelity and I have contacted them and I have the literature that says I can roll it over to an IRA or another employer's 401K

But the place where I will start working in probably a week or so does not allow you to rollover your 401k.

 

[Maikeru-sama]

Are there different types of Roth IRAs and Traditional IRAs or are they all the same?

The Roth IRA seems attractive because you pay taxes up front.

 

[Bigdog]

I am no financial expert but do know some what about this type of stuff. my advice is not to use your 401k to pay off your student loans. There are several reasons for this: 1) You will have to pay the gov't 10% ( I believe if you cash it out) 2) your can write off your student loans if you qualify for tax purposes (need to check with your tax prepare for this) 3) you can always consolidate and get a lower rate on your student loan (now is a great time to do this) Student loans usually have a variable interest and depending on the market fluctuates every year usually in July is when they set the interest rate.

You can roll your 401k over into a Roth IRA where you pay taxes now but not later. The thing is if you do this you have to pay taxes on it now and depending how much you have in the 401 K it could be pretty hefty (again ask your tax prepare) In 2010 you can do this but spread it out over 2 years instead of being tax in lump sum.

I personally would not cash ou your 401k due to taking a big tax hit. Tried to roll it into a traditional IRA or a Roth if you can absorb the tax hit this year on it. A Roth is the best for young people. As one financial advisor told me " Would you rahter pay tqxes on $2,000 or $20,000? I think it is obvious that all of us would rather pay on 2,000. Hope this helps.