My Co-Worker Said I Should Cash Out My 401(k)
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Recently, I had a conversation with one of my coworkers regarding my 401(k) plan. She suggested that I should cash out the plan and use the money for other purposes instead of keeping it invested. This conversation left me wondering if cashing out my 401(k) was a good move or not. Therefore, I did some research and analyzed the pros and cons of cashing out a 401(k) plan.
Firstly, let’s talk about the benefits of cashing out a 401(k) plan. The most apparent advantage of cashing out a 401(k) plan is that you get access to the money that is tied up in the account. If you need money immediately, then cashing out your 401(k) plan can be an option. Additionally, if you are planning to invest your money in a business venture or need money for emergency expenses, cashing out your 401(k) plan can seem like a good idea.
However, while cashing out a 401(k) plan might seem like a quick solution, it has several drawbacks as well. First, withdrawing money from a 401(k) plan is not as simple as going to the bank and withdrawing cash. When you cash out a 401(k) plan, you are required to pay taxes on the amount withdrawn, including a 10% penalty if you are under 59 ½ years old. This means that if you cash out your 401(k) plan, you are not only losing your retirement savings but also losing a significant amount of money in the form of taxes and penalties.
Secondly, cashing out a 401(k) plan means losing the power of compounding interest, which is an essential aspect of long-term investment. When you invest in a 401(k) plan, your money grows tax-deferred, which means you don’t have to pay taxes on the gains. However, when you cash out your 401(k), you lose this tax-deferred growth opportunity, and your funds will no longer compound from that point forward.
Lastly, withdrawing money from a 401(k) plan may not be the best option for everyone, especially if you are not in an immediate financial situation. Instead, you may benefit more from keeping the funds in the account and letting them grow over time. If you are around 30 years old and cash out your 401(k) plan, you may lose out on around $130,000 by the time you reach 60 years old, based on average market returns over the past decade.
In conclusion, cashing out a 401(k) plan may seem like a good idea in certain situations, but it’s not a sound plan for the long term. Before you decide to cash out your 401(k) plan, you should consider other options such as borrowing against the plan, exploring other avenues of investment, or downsizing your expenses to meet your financial needs. Remember, your 401(k) is an essential aspect of your retirement plan, and cashing it out may have severe implications on your future financial security.
Without listening to the show I can say, your Co-worker is an idiot
I live in Maryland and let me tell you it's exxxpppensiveeee. With a 45k income you can't really making.
i got a way better option…… i did with my 401k
20% early unless your 59 and a half 10% then
Never pause all investing entirely … get at least the match at your employer.
Lost me at candles
I hope she didn't do it
"But my friend said" is the worst way to get advice.
I would certainly NOT move to Maryland. I am here, now. Counting down the days to leave this high crime, expensive to live state, high in taxes, high in everything but fun.
This caller may have misunderstood her coworker’s ambiguous advice. The coworker probably meant “you can do a rollover into an outside IRA” when she said “you can take the money out of the 401k”.
Good move George, on gifting the Financial Peace U program. The caller doesn't seem to have much financial experience.
She new about the tax and penalties implication before she called
1400 x 26 weeks= 36400
This is a big miss by the Ramsey team. When switching jobs, you can withdrawal 401k contributions up to a certain amount without a penalty or you can roll those into your new employer’s 401k plan.
Impossible. She takes home 2800 a month. Pay 1800 in debt repayment? Just impossible. She will be lucky to put $500/month.
You don’t have access to your 401k money that is your current employer’s 401k. Once you leave, you can roll it over to an IRA, roll it over to your new employer’s 401k (if they allow it) or cash it out.
Successful people don't become that way overnight. What most people see at a glance- wealth, a great career, purpose-is the result of hard work and hustle over time. I pray that anyone who reads this will be successful in life..
I would ONLY cash out my 401k if it meant paying off debts to free up money monthly to throw towards other debts to avoid bankruptcy. That’s the only time using your 401k should be an option (in my opinion)
Question- during the cares act era i think you could take your money out without certain fees, right? Would that have been an ok time to take it out to pay debt then?
Early withdrawal penalty is 20%
Broke people are always full of financial advice
I know so many that have no choice but to do this
The obnoxiousness of the feds to penalize you 10% for an early withdrawal to help their friends on Wall Street!
I don’t understand why the coworker’s advice was to cash out the 401k because she “doesn’t work there anymore”. What does her current place of employment have to do with cashing out a retirement account..?
I think she misunderstood her co-worker.
Most likely they said she should move the 401K into an IRA.
Co-worker was right. A 401k is a joke.
They should've asked her how much was in that 401k account. You can yoink it without penalty if it's under a certain amount.
Fun fact don't listen to coworkers..
Most important thing for everyone is to save for retirement. Next is home ownership. Finally is additional savings outside of retirement.
I like what george said at the end “if this is your only option you dont have enough options”
Her friends maybe meant to say to move it over to a IRA account not to cash it out?? Makes more sense
All of a sudden these guys are concerned about losing out on the growth of their investments over paying off debt?
what a bad position to be in, doesn’t sound like she really knows what she is doing
Your co worker is a genius. We are all gonna be wiped out. With WW3 in the horizon, you might as well take what you can before it's too late. We are headed to total destruction unfortunately.
This is silly. She makes no money and this 401k is worth very little I'm sure
I remember people cashing out and taking loans on their 401Ks back when I was in my 20's and 30's. I'm 57 now and I wonder if they regret doing that now. My guess is they do. Best to consider that 401K money untouchable until it's time to retire. Roll it directly into a retirement IRA – DO NOT have it directly deposited into your checking account and then try to roll it over because it will be taxed. Roll it over directly from the 401K into the retirement IRA.
Maryland is beautiful but cost of living is huge. They have 14 % state taxes. Housing , food, healthcare is almost double in Maryland from Florida. I've lived in Florida since 1987..I retired at 50 years old in Florida. Please take advantage of Dave Ramsey course. You sound so sweet and I just want you to grow. Florida has more jobs. Best of luck young lady. NEAL APOLLO BEACH FLORIDA
George doesn’t yet understand that the ramsey university gifting is for people who have earned it. Not to nudge people to begin the journey!
My wife's retirement plan is essentially a money printer. They match 2x what you put in up to 20%
Because it is so insane we max it out even while paying off debt.
It would be better for us to put money into it and pull it back out while paying the tax penalty to pay off debt than to stop contributing to it to pay off debt.
Even though it's not inline with the baby steps.
Massing up that much money for retirement is just too beneficial not to do even though it adds a few months to our payoff schedule.
How about taking a partial loan against it?
Moving from FL to MD. Yikers.
The fact is a good portion of us will NEVER retire…that 401K may be better used now than never…No one wishes for that but not everyone gets to live long enough to retire…If you cant afford now why in the world are you saving for later? What if later never arrives for you?
Somebody was gonna have a good laugh at her if she took that advice.
Paying off that debt should be the no1 priority but not at the expense of your retirement.
remember that every dollar in your retirement account is going to be worth 10X-15X its value in 30 years.