Severance pay and 401k withrawal during a Chap 13

[shirley1]

Hello, my employer recently offered those that qualified, about $7,000 severance and a very generous healthplan. I have back problems and would like to take it. I will have to cash out my 401k to make it work financially (we are in the middle of chap 13 for a few more years)...401k only worth 17k after taxes...medical plan worth $120,000. We do not want to convert to a 7 due to an equity loan. My question is, are we allowed to withdraw 401k/and keep the severance to use for trustee payments and living costs? (About the same amount I (the spouse) made working, spread out) Don't wish to go thru review by court, etc.
Thank you!

[HHM]

Probably, so long as you can keep up the payments, no one really cares. I would certainly run it by your attorney.

I guess I am not quite understanding. Is the severance, $7,000 per month, or $7,000 gross. And with only $17,000 in the 401(K) (of which you will only see about $14,000 of that), how does this work. I assume your spouse must be working?

[shirley1]

Probably, so long as you can keep up the payments, no one really cares. I would certainly run it by your attorney.

I guess I am not quite understanding. Is the severance, $7,000 per month, or $7,000 gross. And with only $17,000 in the 401(K) (of which you will only see about $14,000 of that), how does this work. I assume your spouse must be working?

Yes, spouse is working; $17,000 is after taxes; and $7,000 total after taxes; medical reimbursement will save us money too. Thank you for your fast reply!

[chicagoed195]

I would suggest that you roll the 401(k) into an IRA and then only take out the amount you need each month to offset your expenses. It doesn't have to be complicated. You can set up an account with TD Ameritrade or a number of other brokers that allow self managed accounts. This will defer the impact of the distributions over several years and will prevent a significant spike in income for 2012 due to the severence pay and the 401(k) distribution.

[shirley1]

I would suggest that you roll the 401(k) into an IRA and then only take out the amount you need each month to offset your expenses. It doesn't have to be complicated. You can set up an account with TD Ameritrade or a number of other brokers that allow self managed accounts. This will defer the impact of the distributions over several years and will prevent a significant spike in income for 2012 due to the severence pay and the 401(k) distribution.

Great idea! Thanks!