Ask Terry Questions 401k withdrawal for “buried in debt” situation

401k withdrawal for “buried in debt” situation

By Terry Savage on July 03, 2018 | Credit/Debt

Dear Terry

After 18yrs I lost my job on April 24, 2014. I was unemployed for 6 months, had two weeks of no income. Then started a new job in November 2014 with a cut in pay, in addition to other deductions that I did not pay at my previous job. For example union dues and the cost of insurance is higher. I now have to travel further for work and starting over again.
We are writing to you to ask if we should cash in my 401k from my last job that I lost 3 years ago. I started a new 401k with the new job. We are having trouble living from pay check to pay check. We also have 15k in credit card dept, medical and normal bills. If some thing finical went wrong, with the house, car or if I got sick. I have no sick pay with this job.
My wife does notwork. I am 57 my wife is 58 and we have a 14 year old daughter. Should I cash in the 401k, pay off our dept and reinvest anything left over.


Jeff and Patti

Terry Says

I truly feel for you in your position. A new study by Transamerica shows that 37 percent of the pre-retiree generation feels they haven’t caught up after the effects of the 2008-2009 recession.
The professional answer is always a quick “NO” — don’t take money out of an account that you’ll need later and is currently growing tax deferred. But I detect a note of panic in your post.
So let me direct you to call the National Foundation for Credit Counseling at 800-388-2227. That will connect you to the nearest local office. You and your wife need to gather your information — recent tax returns, bills outstanding, etc — and make an appointment with them. They are non-profit and you can trust them completely.

And you didn’t ask, but one thing stuck out immediately in your post. Why isn’t your wife working? Even a few hundred dollars a week from part-time work, or driving an Uber, or caring for an elderly person who can afford to pay for either household help, driving to appointments, etc — could make a HUGE difference in your ability to pay down your debt and get ahead! If your wife is disabled, then she should apply for SS disability benefits. But if she is not disabled, she should be working to get you out of this mess!



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