Is it worth cashing out my 401k to pay for college?

Question

I'm almost 30 and have over $20,000 in my 401k. I want to quit my full-time job, find a part-time job and go back to school full-time. Is it worth cashing out my 401k?

Answer 1

Hello - congrats on the 401K savings so far. good job!  Go see a fee only financial adviser. they should be able to give you the best advice given your situation.  Good luck!

Answer 2

This is not a question for the UK, but you need to work out if cashing your 401K (whatever that is) is cheaper than a loan for your further education.

Answer 3

If you cash out your 401K, you'll most likely have about 50-70% of your 20K to use. There is a rule in 401K called 59 1/2 rule, meaning that if you take your money out before the age of 59 1/2, you have to pay penalties and taxes anywhere from 30%-50%. Literaly, you will probably only have enough money to pay for a semester or a year of college. Is it worth it? I wouldn't do it if I were you. I would rather let that money grow for me so I can retire. By the way, if you decide to keep your 401K, I have a friend who recently helped me roll my IRA over and got 5% extra money for my IRA. If you're interested, i can pass the name along to you.  

Answer 4

People with college degrees typically earn more than those without.  So, figure how long it would take to recoup the 20K.  My guess is that you would be advised to take out the money, as you are young and can make lots of money.  Good luck, hero.

Answer 5

When you leave the job, roll the 401k over to an IRA.  This is investment for retirement.  Cashing it out now is a huge mistake.  You will have to pay the 10% penalty for early withdrawal on top of the income taxes.  Figure 40% will be withheld.

Get your part time job and student loans to handle your educational expenses.

Answer 6

most would advise that cashing in the 401k is never a good idea. there are a few times when it might be (losing your home), but i don't think in your case it is.

first of all, there is a HUGE tax penalty-if you were going to cash it, wait until you have been unemployed for a year or more (cehck with a financial advisor on the specifics here) and into a lower tax bracket. One of the benefits of a retirement pln is that the money is not taxed when you put it in and are employed, but taxed when you take it out, presumably as a retiree in a much lower tax bracket.

secondly, you not only lose this little nestegg, but it is working to earn more money-so you also lose those future funds as well.

school loans look like a better option-low interest and liberal pay back terms. you will pay less in interest than the 401k is earning (most likely).

it is tempting to tap into the 401k but overall, if there are other options you should strongly consider them.  

Answer 7

I think you might want to seek out a financial advisor, they would be able to tell you if cashing your 401K is a good idea.