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How can my hubby cash in his 401K?

After a lot of thought and discussion, we have decided to cash in his 401K...we aren't sure how to do it though...

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Anonymous

Asked by Anonymous at 1:45 PM on Aug. 22, 2010 in Money & Work

Answers (14)
  • it depends on the terms of the 401k, but usually, yes. There are usually hefty fees/ taxes assessed, so make sure it's really worth it.
    lovinangels

    Answer by lovinangels at 1:48 PM on Aug. 22, 2010

  • i think you lose roughly 40% of the cash value of your 401K when you cash it out r u sure?
    katiekruschke

    Answer by katiekruschke at 1:49 PM on Aug. 22, 2010

  • yeah, he will probably take a huge hit for early withrawal, and taxs on it next year. Take all of this into consideration.
    beyondhopes

    Answer by beyondhopes at 1:50 PM on Aug. 22, 2010

  • They have what they call a hardship withdrawal. But, expect to lose quite a bit if you do this in any way.

    zbee

    Answer by zbee at 1:51 PM on Aug. 22, 2010

  • Talk to his company about it. You can do a loan on a 401K or you can cash it out. Some companies have clauses saying that you can't cash out the matching portion unless it's been in there for more than five years.

    Also if you do cash out you will be charged a 10% early withdrawal fee, plus your tax rate. So it's kinda like borrowing money at 40% interest.

    I hope you will be able to find another solution.
    Erica_Smerica

    Answer by Erica_Smerica at 1:59 PM on Aug. 22, 2010

  • Typically it depends on the terms of the policy. You can do a hardship withdrawal, however usually before you can do that, you have to take a loan out first and repay it (normally payments are deducted from your paycheck). You have to meet one of certain qualifications for a hardship withdrawal:

    1. Un-reimbursed medical expenses for you, your spouse, or dependents.
    2. Purchase of an employee's principal residence.
    3. Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
    4. Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
    5. For funeral expenses.
    6. Certain expenses for the repair of damage to the employee's principal residence.

    If you are under 59 1/2, you will be penalized with a 10% penalty tax, however (see next post)...
    thatgirl70

    Answer by thatgirl70 at 2:00 PM on Aug. 22, 2010

  • He just needs to contact the plan administrator. You will have to pay taxes on the money (40%-ish), and he may have to pay a penalty as well. Have you looked into borrowing money from the 401k program instead? You don't have to pay taxes on it, and they have you pay it back to yourself.
    Scuba

    Answer by Scuba at 2:01 PM on Aug. 22, 2010

  • (con't)

    You may qualify to take a penalty-free withdrawal if you meet one of the following exceptions:

    1. You become totally disabled.
    2. You are in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
    3. You are required by court order to give the money to your divorced spouse, a child, or a dependent.
    4. You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
    5. You are separated from service and you have set-up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. (Once you begin taking this kind of distribution you are required to continue for five years or until you reach age 59 1/2, whichever is longer.)

    Be advised that your employer is NOT required to offer hardship withdrawals as an option.
    thatgirl70

    Answer by thatgirl70 at 2:01 PM on Aug. 22, 2010

  • You should check into the conditions first, and if you do cash out be aware that there could be penalties and it will have to be claimed as income on income taxes.
    Have you considered taking a loan out from it instead? Some plans do allow you to 'borrow' your money now, and then as you pay it back it goes back into your 401K so you still have money for the future. I did that from mine in April-- to pay off my hubs and son's medical bills. I was able to take out the amount I needed and I was able to pick the length of the loan. The amount they take out each paycheck to pay it back is not very much at all.
    Anonymous

    Answer by Anonymous at 2:09 PM on Aug. 22, 2010

  • dont cash it out if you can help it! you pay so much in penalties. i'd try to take out a lower interest loan against it first.
    lillie70

    Answer by lillie70 at 2:23 PM on Aug. 22, 2010

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