Getting a refund from retirement

[vesmith77]

I'm almost done with a chapter 13. Can I cash out my retirement from a job that I'm no longer employed? Will the trustee be able to take the money as disposable income?

[justbroke]

Welcome to BKForum.

First, I just want to mention that a "cash out" is a withdrawal as opposed to a 401(k) loan. A withdrawal has tax consequences unless you fit one of the exemptions for withdrawing. It may include a 10% early withdrawal penalty as well as being taxed at your marginal tax rate for earned income in the year that you withdraw. As mentioned, there are some exemptions especially for those over 59.5 years old.

A hard lesson that I learned is that withdrawing money from a 401(k) retirement account to meet current demands, is never a good idea. Unless it's to purchase a primary home or to prevent eviction (not just stave off, but actually prevent a one-time eviction issue), then it is probably not a good idea.

I would not convert that to cash. I don't know if you need to seek permission to do a withdrawal while in a Chapter 13, so I can't answer the potential impact. It may come down to how your Chapter 13 Standing Trustee and your specific district handles this. (That is, whether you need permission to withdraw the money form the 401(k) account.)

I'm sorry I can't provide you with a more firm answer. Since you're in a Chapter 13, it's probably best to reach out to your attorney. In some districts, they don't care since the rules may vest the 401(k) back to you at confirmation. In others, you may need permission and a good reason to withdraw the funds.

[vesmith77]

Thank you for your response.