Raiding Your 401(k): the Consequences of Cashing Out

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Payday Advance Loan of AL 11:47PM February 25, 2010

Directed to Alan of LA:
I don't think Tom Ford's post was an emotional reaction to unemployment. I think it was a rational reaction to REALITY. Faced with a similar situation, my self-employed husband and I are looking at making a similar choice. Do we keep the money in the 401k's (where we've watched them dwindle to pretty much what they were 10 years ago)?
Granted, they might have been better directed, but at this point, that assumes continued faith and confidence in the stock market and gov't administration. I have neither. I have no confidence that things are going to get 'better', considering the amount of spending going on right now. If I leave my retirement alone at this point, I have NO GUARANTEE that I will have anything left by the time I reach 59-1/2.
On the contrary, there is reasonable assumption that I will have very little left. Enron happened once, and Wall Street big wigs just did it again.
Further in the scenario: Alan of LA states that he would rather lose the 'bank's' house and rent, and be able to retire in 'x' number of years. To this I say, in this economy, the ability to pay rent is a big assumption. We have NO income coming in, and been looking in the job market for our industry for over a year. If we cash out retirement now and pay off the house (which is more ours than the bank's at this point), it will be easier to pay annual taxes on it than monthly rent. And we have something we can sell if need arises. We also have time to catch up on retirement. We may not live like kings when we retire, but it will be better than the poor house!

JE of GA 11:39PM November 30, 2009

why didn't you SAVE for something like this over the past 28 years while working for that company? you should easily have set aside the amount you withdrew from the retirement plan in that amount of time.

alan of LA 11:47AM April 17, 2009

the previous comment is based upon an emotional reaction to employment and the economy. two items that demand a logical reaction instead.
would you rather - lose your house and lifestyle now, but be able to retire later in life?
or pay your bills now and work until you die?
the first misconception is saving one's home. it's NOT your home. it's the bank's home. i would rather lose "my" house and rent if it meant the ability to leave the workforce at some point.
the previous comment was made by a person who should have never had a 401(k) to begin with. when you invest in such a plan you are making a commitment to STICK WITH IT.
he would have been better off keeping that money in a shoe box the whole time. enjoy greeting me at wal mart in 20 years friend.

alan of LA 11:44AM April 17, 2009

I was laid off in Nov. 2008 with 8 weeks severance pay after 23 years with the same company. Jobs in the printing industry are non existent presently.So, I cashed what I had out. It had been in ultra conservative low bond funds for 4 years because I kinda saw this crash as inevitable. Was about 30k at the time and making very little but that was ok. Over the last year I watched it slip to 23k and held fast. I get the check and they withhold 20%. I know I'll owe another 10% at least, but my income for this year will probably be unemployment checks and I'm having taxes withheld there. I know how stupid it is to cash out, however, I am NOT gonna lose my home and lifestyle (although I have leaned out substantially) because the economy was ALLOWED to spin out of control by both banking and government misdirection. Being responsible, I'm gonna put 20% more of that check into a tax account just in case, but I do feel like the 10% penalty should be revoked for a time because ANY money released into the hands of the people is a good step to jump start spending and pull us all out of this mess.Bailing out irresponsible banks and insurance companies is the wrong way for this country to go. What happened to capitalism? Is it dead, or just brain dead?
MONEY IN THE HANDS OF THE AMERICAN PEOPLE (NOT BANKS AND INSURANCE COMPANIES) IS THE WAY OUT. Wanna get crazy? Stop all income taxes for 1 year and see what kinda spending that creates. Yeah, crazy. Like a fox!!

Tom Ford of TN 9:21AM March 08, 2009