Can you cash out a 401k for home improvements?

Question

We need to build a new deck. We do not want to get a second mortgage. The 401k has about 6000.00 in it. Its from a job my husband left 6 years ago. It is also losing about 60.00 a month the last few months. I know you have to pay a 10% penalty and taxes on the money. But to cash it out do you have to tell them what you are going to use the money for?

Answer 1

They are going to ask what you what it for (I normally just tell them unexpected expenses), but yes you can. You know about the penalty and taxes, so no suprises for you there. If the market does not improve, and you decide to borrow from yourself instead of cash out, the interest you pay yourself  might be more than your normal return!

Answer 2

Hmmm...reducing funds available for your retirement to build a deck? That would be very unwise. You can always borrow money to make home improvements (like a deck) but you will never be able to borrow money for your retirement. Leave the money in the 401(K) as you'll be needing it in the future.

Answer 3

Assuming you can eat your deck when you retire......go ahead and cash it out..............

You will lose......10% and they will hold back 20% for IRS......so you will get 4200..........really dumb move..............they don't care if you pile it up on the garage floor and burn it........cause thats what you will do when you lose $1800 bucks.........

Answer 4

You can cash it in for any reason you choose, but is amongst the most stupid financial decisions you can make. First you get penalized both by taxes and an additional penalty. And you're stealing from your retirement for a stupid deck. Your idea is incredibly stupid, but it sounds like you've made up your mind anyway.

Answer 5

Not sure about cashing out, but what you can do is take a 401 loan for home improvements.  Then you're paying yourself back at a guaranteed rate of interest.  At my work, they just deduct the payments from my check automatically.  Take the loan over the longest period of time allowed and the payment will be relatively small.

Answer 6

don't cash it.. the best thing to do is to borrow from your 401k.. and you can pay it back up to 5 years... this way you don't loose it and you don't have to pay penalty or tax... and it is money you pay yourself back.. and usually the interest is very low like 4.5%.....

but before doing that try maybe to postpone it till next year and try to save for it.. because this way your saving will make more money... and you will not use 401k that is making you money.. because every money you take it dicrease your investment and your earning in the long time..

Answer 7

I think you should pretend it doesn't even exist.  Let's assume you have 35 years to retirement, if you leave it alone (assuming it is in stocks, which is where it should be), you can realistically expect it to grow to somewhere between $89,000 and $600,000 by the time you retire.  If you take it out, you will pay a 10% penalty (reducing it to $5,400) plus income tax at your current rate (reducing it to somewhere between $3888 &$4500, depending on your tax rate).

You would have to be crazy to choose $3,888 next week over $600,000 at retirement, wouldn't you?

Answer 8

Don't borrow or withdraw from a 401K.  Don't use the fact that it's losing money as a excuse (you need to educate yourself on how they fluctuate).

Here's the bottom line..... when you're 65+ and you need money to live on...... the deck won't be that important.

Save for the deck!... leave your retirement money alone.

If you withdraw this money.....you'll consider this one of the biggest financial mistakes you've ever made.  If you have kids...... what are you teaching them by having such a small view..... they'll never understand delayed gratification.

Educate yourself, live in reality & you'll be fine!