Is it ok to take a 401k withdrawal after 341?

[tdawg]

I had my 341 before Christmas, and it seemed pretty quick. I was laid off in November, and have not been able to find a new job yet. I have about $10k in a 401k from that employer. I have read their policies, and it seems like if I take a withdrawal from it, that they will withhold 20%, but that if I invest it into a new 401k within 60 days, then I will not owe taxes on it.

Would there be a problem with me taking a withdrawal from it? I am really short on cash. Unemployment does not pay anything even close to my bills. I was thinking of withdrawing it to live off of. I know it isn't the best long term strategy, but I am pretty desperate.

[AngelinaCatHub]

First, I question your wisdom and on this forum if you do a search it is 99% conferred as unwise to rob from your future and take that enormous penalty. Otherwise, I certainly would wait until you are discharged.

Trustee's thought, you could do this now, you could not do this to pay your creditors. Not wise for both reasons. My opinion. 'Hub

[DebtHater]

Aside from what ever the BK ramifications are on pulling the money I would look at the personal reasons.

The problem with withdrawing it is that $10,000 will become about $8,000 once you the company pulls their share. Then you will be required to pay the KGB, I mean IRS, whatever your withholding's are as determined by your tax bracket. Lets just say it's 15%. That isn't much different than borrowing money from a creditor at 35% interest!

That to me sounds very expensive to take the money. I would just roll it over into an IRA and not worry about it.

Until you land a new job I would look any work you can get to hold you over.

[HHM]

Shot answer, yes...you can take a 401K withdraw during an active BK.

However, is it wise to do so, NO.

[Flamingo]

Best advice to anyone with a 401(k) plan and saving in it, whether or not in financial straights - forget you have it. Do not touch it. Not only does DebtHater give good reasons not to do so and other posters, Suze Ormon recently did a segment on TV during either Good Morning America or some other daily program going over the entire 401(k) scenario of people borrowing and taking money out of their 401(k)s and how it is always the worst thing to do under any circumstances...I am sure that segment she did is searchable on the internet. I would suggest doing one's homework big time before anyone ever touches their 401(k) for anything.

[Faust]

I would do what you can to avoid taking the money out but if you have to, you have to.

[tdawg]

Thank you everyone for all of your responses. I will do whatever I can to avoid taking money out of it, but if I have to (can't pay utility bills, etc.) then I definitely will think about it quite a bit more and check with my lawyer first.

Thanks again! With no job and expenses I have to pay, I'm just trying to figure out what the best thing to do it.

[DebtHater]

Just remember one thing. Should you pull the money from retirement, once it's gone, it's gone. $10,000 is not a lot. Once you spend it you will be in the same place you are now (with nothing to retire on) unless you get some income.

[AngelinaCatHub]

Thank you everyone for all of your responses. I will do whatever I can to avoid taking money out of it, but if I have to (can't pay utility bills, etc.) then I definitely will think about it quite a bit more and check with my lawyer first.

Thanks again! With no job and expenses I have to pay, I'm just trying to figure out what the best thing to do it.

As others have said, once it's gone you will never get it's value back. If you borrow from it, you will never pay it back. You will be in this same boat so why make a known poor decision after getting here for poor decisions? (Please don't take that comment personally, we are ALL here due to bad decisions).

You will bless the IRS with a very big Christmas present that is your future retirement, down the drain. 'Hub

[AngelinaCat]

that they will withhold 20%, but that if I invest it into a new 401k within 60 days, then I will not owe taxes on it.

Being unemployed and in this economy with poor prospects for employment quickly, you most likely will NOT be able to reinvest this money in a new 401k before the 60 day deadline.

In my opinion, you are thinking too short term and will be taking a huge risk with a large tax penalty. You might as well take this money out to the back yard and set a match to it. That is essentially what you would be doing.
Please re-think this.

[DebtHater]

.... you most likely will NOT be able to reinvest this money in a new 401k before the 60 day deadline.

To add to what Angelina said, roll it over to an IRA so there's no 60 day worry and no temptation to "borrow" from it.

In a roll over it will never go into your hands, never get taxed, you sign the paperwork and that's it.

I will admit, I've cashed out a 401K from a previous employer upon separation. At the time it seemed like the thing to do. Hind sight being 20-20 I do regret it. It really didn't solve anything. It only prolonged the inevitable. Fortunately for me the amount I cashed out was only a couple of thousand dollars.

Realistically the best way to overcome an income deficiency is to make more money even if you have to work 5 part time jobs. The 5 part time jobs are better than the 1 full time job you don't have.