Rolling over a 401k or withdrawal to reinvest.
Hi Terry. I am 39 years old and recently switched jobs. I have about $120k in my 401k from my previous employer. I also have a loan out from when I purchased a home with a balance of $20k left. Now since I left the previous job I don’t have the option to pay that loan back anymore so it is going to default and I will have to pay taxes on it. Now I also have a few other debts. A car payment and a couple credit card bills I’d like to pay off. So my question is, is it a bad idea to withdraw the whole lump sum and pay my debts off and reinvest somewhere else? Or should I just roll it over, pay the taxes on the loan and leave it and still have my personal debt? (Car payment and credit cards) altogether I have about $30k of debt I want to pay off. Not including the loan for the house. Since there is no way of getting around that. I’m going to have to pay taxes on that no matter what after it defaults. Thank you.
Terry Says
This is a tough one. I understand your desire to get a fresh start. And yes, you’ll have to pay taxes on the forgiven loan of $20,000 when you do the roll. But I can’t believe you have $100,000 in debts to eat up the balance.
My suggestion is to roll the entire amount, then withdraw enough to pay taxes AND the 10% penalty. Then keep trying to pay down your other debt — making double the payments on your credit card debt. And find an extra job to pay down the car payment.
Keep the balance growing tax deferred for your retirement. One day (not now, I know) you’ll thank me!!!
