Should I withdraw from my 401K?

Question

I am 28 years old and I switched jobs and I have the option of rolling over my 401K or taking it all out. Its only about $500 that I will receive after the 20% penalty. I am using this to pay off a credit card, which being 28 years old, I only have about $2000 in debt that I am trying to pay off. My new job automatically takes out for my retirement on a monthly basis so I already have more than I have saved from my old job. What should I do?!?! Taking that $500 out will help pay off that $2000 debt but I also don't want to be hurt with the 10% when I filed my taxes! ANY ADVICE?!?!?!

Answer 1

It's a 40% penalty. Your regular 30% on the income (or so) and a 10% penalty. It's not a lot of money, you can keep it or leave it in. You're young enough to recover.

Answer 2

That $500 will be worth between $5143 (worst case scenario) and $189,000 (best case scenario), and in the most likely case scenario will be worth $32,500 by the time you retire, if you just leave it alone.

You are 28 years old, old enough to know that taking it out would just be dumb.  Get a second job to pay off the $2,000.  Incidentally, that $2,000 debt could easily grow to $1.5M by the time you retire, at prevailing current rates!

Idiots owe interest, smart people earn it.

Answer 3

Leave the money in the retirement account--just roll it to an IRA.  You need to get into the lifelong habit of saving for retirement.

Keep in mind that if you have a decent income, the 20% withheld won't be enough to pay the taxes when you file.

10% is for the penalty.

The other 10% is just regular withholding and if you are in the 15% tax bracket, is short 5cents on the dollar.

Answer 4

I think you should roll it over and keep it for retirement. $2000 is a small hurdle to overcome (I had $20,000! Close to living debt-free now) Just stop using the credit and put every extra dime you have toward paying it off. Then put some money in a savings account for emergencies and set periodic goals for saving for a large item. You will never need credit again (except maybe for a mortgage?)