401K hardship withdrawal

[frustrated7]

Before I even start, I know, I know, I know...messing with the 401K is always considered a bad idea. It's something I would rather not do, but I was wondering if this was even possible. (Keep in mind that I would wait until after the BK discharge to start this process.)

Our roof needs some major repairs. It is in really bad shape, and I honestly don't know if it's going to make it for another year. My husband insists that he hasn't seen any signs of leaking in the attic, but there are literally pieces of our roof (shingles?) that have blown off in storms over the past couple of years. It really does need to be done, we get comments from people all the time, like we hadn't noticed how bad it is.

Anyways, we don't have the money to even begin to consider getting this fixed and we don't have any way to get the money either. It dawned on me earlier today that my husband does have a little money in his 401K (around $3500, give or take a bit). We have a loan that we took out on it several years ago that is still being paid back in automatically from his every paycheck, which means we cannot take out another loan against the 401K to fix the roof. I tried looking up, but it seems unclear as to whether we would qualify for a hardship distribution to fix the roof. The roof really needs to be fixed, we don't have the money, we have no way of getting the money, we are in BK for crying out loud...I would call our situation a financial hardship. Does anyone know if this might work?

My husband is at work right now and the place is closed at the moment, but I would like to know if this is even a possibility. I don't want to mention it to my husband, who is really stressed about our situation, unless this might actually work. I can't bear getting his hopes up and then him being crushed if we find out it isn't possible.

Thanks in advance.

[AngelinaCat]

Dear frustrated7:

I have been there and done that.

That said, I am going to SCREAM AT YOU--DO NOT DO THIS!!! This is one of the worst mistakes you can make.

We first made a loan against 'Hub's 401(k) and got hit with a 10% penalty and Income Tax consequences. Then--as if we hadn't already learned the hard way--because of the financial trouble we got into, 'Hub (BTW 'Hub is my DH AngelinaCatHub) cashed it out altogether. So we have the consequences of dealing with yet ANOTHER 10% penalty, plus the IRS is on our backs.

Financial whiz-kids, we are not.

Here is what Consumer Advocate, Clark Howard has to say on the subject:

"Jun 03, 2009 -- Dangers of early 401(k) or IRA hardship withdrawals
With the hard economic times, many people have taken to raiding their retirement savings without fully understanding the repercussions.

In fact, The Wall Street Journal reports that 401(k) hardship withdrawals have tripled in just 6 months.

The typical person who taps into their 401(k) or IRA before they've reached retirement age will generate a tax bill plus penalties that can be up to 40 cents on the dollar.

So let's say you get laid off from your job and cash out a $10,000 retirement plan. After you spend it, you then get a tax bill for $4,000, plus you have zero in retirement and you have to start all over again.

To share a quote from The Wall Street Journal article, "Making an early withdrawal should be a last resort, 'somewhere right before homelessness and/or starvation.'"

Of course, there are narrow circumstances where you can withdraw money and only pay tax and no penalty. These include buying a first home and for select educational expenses. But the circumstances are little understood by the average person and all too often disregarded. "

In my humble opinion, you can go to Lowes or Home Depot and buy several large brown tarps and put them on your roof until such time as you can afford better.

My heart goes out to you.

[AngelinaCat]

To further illustrate the potential bad situation you and your DH may propel yourselves into, please consider this:

DH was forced into an early retirement that he did not want, but had to go. His 'retirement' income is $430.00 a month, period.

DH when he became 62, applied for SS, because the 401(k) was GONE. Had he waited until he was 65, he would have gotten more. His SS is around $1300.00 a month. It looks like a lot on paper, but in no way pays the bills. Also because of our earlier foolishness with the 401K and other matters, we owe the damnable IRS around 30K. We have to make payments of $550.00 a month to keep them off our backs.

And the household makes too much money for us to qualify for food stamps.

I am 56. Because of an Enemy we have,(cyberstalking) I lost two very good jobs, and for all intents and purposes have no prospects for gainful employment in this economy.

My PT job is running out. My Unemployment is running out. We have bills we cannot pay, even in spite of our successful BK.

Thank GOD Almighty that a TIAA-CREFF Account that I signed up for more than 30 years ago with the employer at the time, was written in iron-clad language that basically says that until I reach the age of 65 in the year 2017, there is no way I can touch this account, OR ELSE IT WOULD BE GONE. I tried.

Please be very careful, my Friend, I think if you pursue this course, you will be VERY SORRY in the future.

[eddiep]

I have slavic and I am not sure if this applies to all 401k plans but their requirements for a hardship withdrawal include:

1.Medical Expenses (copy of medical bill(s) not covered by insurance)
2.Purchase of a Primary home (copy of good faith note or sales contract)
3.Tuition for a participant or dependent of a participant (copy of tuition bill(s))
4.To avoid eviction or foreclosure from the primary home (copy of eviction/foreclosure notice from mortgage company or the court)
5.Funeral Expenses (copy of funeral bill(s))

Sorry, I have to agree with Angelina Cat, we learned the hard way too. My hubby took out a $20k loan from his 401k, lost his job, could not pay it back so it became a withdrawal. The taxes were a killer!

[AngelinaCat]

Thanks Eddiep

[eddiep]

I hope I dont come off as a judgement jerk, but I think that one of the benefits of this forum is to encourage each other to seek alternatives to continuing the cycle that got us here to begin with, so I hope you don't take offense to my suggestions.

Obvioulsy you know what condition your roof is in and I don't but have you had anybody look at it yet? Maybe the roof could be repaired in the areas that are really bad and put off replacing it until you have enough money.

I am lucky my brother is a carpenter and my husband does autobody and can do most of our auto repairs himself. Over the years hubby has been bartering his services with others and last year he fixed a few dents for a landscaper and he did a big landscaping job for us. I'm not assuming that you can fix somebody's car but rather encouraging you to think outside of the box.

This is one of the delimas we all face coming out of bankruptcy, no money, no credit, but things keep coming up that have to be addressed. It is going to be difficult for me too, in the past if I could not afford something I would charge it. Those days are gone.

[Flamingo]

We were in a 5 year Chapter 13 Plan and our roof would not have made it to the end. We too did not have money and there is no way I would have touched the money in my 401(k) after learning what we did prior to filing was wrong by using my hubby's 401(k) in an attempt to avoid filing. What a mistake we regret 8 years later. We refinanced to get the money to do the roof and replace some windows damaged also from the leak ($13,000 total). We also paid off our Plan at the same time.

I too advise against taking out your 401(k) unless it is the last option on earth for a major emergency. However, people are going to do what they want and as they please no matter how many people tell them not to do it because of their own specific situation. If you have no other way, you have no other way. However, you will be hit with taxes and penalties so you need to figure out in the long run if what you are doing is the right thing for you. Best of luck to you.

[zpbk13]

Are you sure you cannot take out a second loan on your 401? I am only asking because I thought we could only take out one loan and was talking to a co-worker and she told me that under our plan (Schwabb) we could have 2 loans at one time. I don't necessarily recommend this route but it worked for us several years ago when we had taxes to pay and I realized that at $100 per month, we would owe that tax debt for years so we made the best decision at the time for us. Can't really say I would do things differently, but I know we have never paid a dime in taxes on the loan money and thankfully they are both almost paid off now.

OP, whatever you decide, I hope it works out best for your and your family.

[mynextlife]

Frustrated

The amount of money in your DH 401K is not worth touching...especially given the tax penalties. If your roof simply looks bad...tell the people that are making comments they can get their a** up there and fix, otherwise shut it!

Perhaps you can find someone who can just do some patches in the bad areas. Unless it's leaking...ride it out until you can do better. Good luck!

[frustrated7]

Thanks everyone. I am sure, by the way, that we can only have one outstanding loan from the 401K at a time. We still owe just under $700 from the first loan. Unless we paid that entire amount back and then waited a bit and then we could take out half of the balance as a loan...but we don't have the money to pay the loan off.

We have not yet had any estimates on the roof, because we already know it will be much more than we can afford. We were hoping to be able to save up some money to put towards it, but my inlaws are demading repayment immediately. Though the debt we owe them will be discharged in the BK, we still will pay them back. Of course, them demanding payback right now, when they know our situation, is a little rotten, imho, especially since they are doing VERY well financially. (They always brag about the size of their bank account.) So I guess paying the inlaws back will take priority over our roof. Of course...if FIL says one more peep about the condition of our roof, I am going to lose what civil tone I can still keep with him.

We tried to think of ways to have people we know do the roof, but the only ones who know what they are doing and who we would trust will charge a full price for it. Albeit, their price is likely to be less than other places. I would like to get an estimate so we know how much we are talking about, but since we really don't have the money for it, why bother? That is why I was considering the 401K. There isn't much money in it, it has only gone down in value since five years ago, and we aren't currently putting money in it (with the exception of the loan taken out of his check).

Anyways, thanks again for your responses.

[mynextlife]

It really irks me when "family" are worse than bill collectors! Give your inlaws $5 a week towards the payment. Tell them the rest is going into the roof repair fund. That way they can shut up about the roof AND shouldn't hound you for NOT paying...you are just paying what you can!

[LuciluS]

O Sweetie - Hmm pun intended..I know you are Frustrated! If you already have a loan of $700 on the $3,500, please TRY not to touch the rest.

Just a few suggestions: Roofing shingles are Cheap! Do you or your hubby know anyone in the contruction business, handyman, yadda yadda. Mebbe you can Barter with a friend. Like mebbe a single guy, who you could cook for in exchange for putting up your shingles. Try to think of people & ways to 'pay them' back without $$$.

My husband is a truck driver. Another truck driver lives about a mile from us. DH didn't know that until around Nov. of last year. We went to company Christmas party together.

Our riding lawnmower broke & needed to belts put on in. This truck driver knew all about lawnmowers & he came over & fixed it. Took him & his 15 yr. old son about 2 hrs. When DH become so ill & hospitalized in April, this guy got all of the stuff out of DH's big truck at the 'yard' which is over 40 miles. His wife went with him & they drove DH's pickup truck to our house.

Of course, no bartering Yet! as they know we are filing bankruptcy & have been there about 22 yrs. ago. So they know what it is like to file BK.

Ask hubby to mention to his "good fellow workers" your roof needs reshingled. He might be suprised one of them will volunteer with much needed information. If you work, you do the same.

Will be Praying you find 'that person' Soon!

Luci

[walkthaplank]

We have not yet had any estimates on the roof, because we already know it will be much more than we can afford.

Get free estimates first and always. Times are tough all over. Get a full estimate and then ask them how much just to fix the areas that are leaking.

You have NO idea how much you need to save if you don't get the estimates first. Estimates may change over time, but you just might find you can afford to have the roof patched, then you can get to the business of saving towards replacing the roof.

I have in the past psyched myself out of doing something because I *KNEW* it would be too expensive. I let it go for a long time, got the estimate and then felt REALLY stupid because it was not even 1/4th what I expected it to be.

Even if you can't afford it now, you have an idea what it will cost you.

[frustrated7]

I know it's a good idea to get the estimates. I am thinking maybe I will call tomorrow about getting a couple of free estimates, or at least one estimate so I have a general idea of how much it will be.

Ironically, there are two different family members who do roofing. One is an uncle locally, but we are not close and we aren't the sort of family that does anything for each other. He even charged my parents (his sister) full price for their roof. I also have a cousin who does roofing, but he lives in another state and there is no way he would get everyone together to come over to fix my roof for me. He's a nice guy, but we aren't that close. I see him once a year (sometimes not even that) and he doesn't live here, so I can't ask him.

My husband does work with a guy that does roofing part-time with some other guys. They all know what they are doing. I asked my husband at the time if there was something the guy needed help doing (moving or fixing something or whatever), but he didn't think so.

My husband considered trying to do it himself, but that is a risky idea. He has passed out unexpectedly twice before, and if that were to happen on the roof...it would be really bad. Also, he has no clue how to do it or what to do, and it isn't like fixing something inside, where if he screws up we can wait and save up the money to have a professional come and take care of it. That was why he was hoping to find someone who knew what they were doing who could show him how to do it and help him out. But that isn't looking promising.

So I think I will get that estimate. I'm not sure how long the estimate would be good for, but I'm pretty sure it would NOT be good for as long as it will take us to come up with the money. Hopefully it won't be as bad as I fear.

[frustrated7]

Thought I would give a quick update. It turns out that money is "safe" from us, because we don't qualify for a hardship withdrawal to fix our roof. They said if a tree fell on our roof we would, but "normal" wear and tear and "normal" storms would not qualify. My husband did call to find out one way or another, just so we would know. It's always best to actually know what options are available.

We are having two companies come out to give us estimates, sometime this week or next, whenever they can. While the estimates will expire long before we can afford to fix it, at least we can know what sort of numbers we are looking at.