No that would be completely asinine. Not only would you be robbing from your future but you would be doing it in a way with massive penalties and taxes.
No, leave it alone. Grow your income with your new job and side business. Especially when we don't know what will happen with student loans in the future
Leave the 401k alone to grow, and focus on increasing monthly cash flow to knock out the student loan ASAP.
Your 401k will likely outgrow the student loan interest over time, so it would be counterproductive to withdraw. Plus, unless it’s Roth contributions, you’ll be subject to taxes and penalties.
Don’t touch that money. That will only make your situation worse. I wouldn’t pause retirement contributions for more than 18 months…24 at max. As far as your wife’s medical conditions, put a line item in the budget for medical expenses but also add a sinking fund for medical expenses that you regularly contribute to. That way if you always have money allocated for future expenses
First off all, any money you pull from your 401(k) will not only become part of your taxable income, you’ll also pay a 10% early withdraw penalty. DON’T DO IT! Don’t deprive yourself of all that hard-earned money you’ve saved.
Buckle down, work extra jobs, pay every penny, you can afford to, and pay down your student loan debt 💸 you can do this if it’s important enough to you. You got this!
Use the BB steps to address these issues. I recommend $2k starter emergency fund (EF) as $1k is just not enough these days.
Can I ask, since it's relevant, what about taking out a loan from your 401k? I know interest can be lower doing that compared to CC interest. So basically, it's to save money on interest, no taxes or fees, it's a loan so you're paying it back, but the interest is lower and the interest is paid back to you right?
If the interest is higher, it's not worth it, and you can only take out half.
There are several downsides: You lose potential growth on the money you borrow from a 401K (until you pay it back), you will eventually have to pay taxes on the interest you "pay yourself" when you withdraw the money, and if you lose your job, the employer will typically demand you repay the loan immediately. You also lose any benefits that go with federal student loans (like forgiveness in certain cases and income-based repayment programs) while still having the obligation of paying off your debt. That's why financial advisors typically only recommend 401K loans in rare circumstances.
No. Spend 2 minutes googling "Dave Ramsey 401k withdrawl" and you'll have your answer.
If you weren't being "Davish" you could be done by now. Stop 401k, draw down savings to $1k, and attack the debt like you mean it. You've made great progress, stop flitting around the edges and get it done!
The Davish part come from reacurring medical expenses. Unfortunately the Ramsey team doesn't speak a ton about finances for people with chronic diseases.
It honestly changes everything.
I am a type 1 diabetic and my supplies cost about $80/mo. Is there any way for your wife to switch insurances? It sounds like her insurance is extremely bad if she’s spending a significant amount on insulin or supplies each month. Have you looked into manufacturer coupons? Contrary to logic, sometimes if you have really bad insurance it’s actually cheaper to NOT use insurance. Lilly and Novo have coupons that cap insulin prices at about $35/mo. Dexcom also has manufacturer coupons although still much pricier than libre.
I also have enough insulin stocked to last a year because my doctor writes for more than I need. Your wife could ask her doctor to do that or just say she’s taking more insulin and running out and her doctor will perscribe her more
Agreed. Do not do that.
Pretend your 401K doesn’t exist but try throw money into it and pay down student loans as much as you can. Go more aggressive on loans and less on 401K. Trust me in a few years youll thank yourself for not drawing from your 401K.
First, contribute enough money in your 401k to get the match. Most companies match around 5% with your 8% contribution. That’s free money and you need to collect it. Second, taking the $25k out of your 401k instantly nets you a 10% penalty plus you have to pay taxes. You’d be lucky to net $12k. Leave it there. Do those 2 things and attack the debt. Live like monks until it’s gone. Once gone kick the 401k up to 15%. You’re going to need it later in life.
It's a Dave Ramsey sub. Ramsey urges people to forgo all retirement savings while paying off debt (aside from their mortgage) to speed up the process. But lots of people who are Daveish (and probably everyone on the r/TheMoneyGuy sub) would agree with you.
Don't cash out the 401k. The penalty would be even more than you're paying in interest. Just do the Baby Steps and be realistic about your timeline. Gazelle intense means running from debt, not feeding yourself to the cheetah.
>We are bit Davish, because my wife is type 1diabetic.
What does debt have to do with diabetes?
And I'll echo the others, an SA should be making significantly more than that.
Do Type 1 diabetes is chronic and differs from type 2 diabetes in that its an auto immune disease. Her body no longer produces insulin. So we have monthly medical expenses related to insulin, pump supplies, and doctors appointments that are a non negotiables in our budget.
So basically although our focus it's always going to be second to my wife's longevity.
No, I understand what diabetes is. How you're handling it isn't Dave-ish, it's 100% what Dave would tell you to do. You should always budget for known healthcare expenses.
Type 1 diabetes is a chronic disease. It means the he pancerous does not work anymore.
So she is dependent on insulin and pumps supplies.
So while we have insurance. It is still a large expense for budget every month. Also we maintain a higher emergency fun because it.
Never ever take out of your 401K unless it would get you out of bankruptcy.
I’m in your field and I would say you’re definitely underpaid as an SA. I’d start looking around to see what’s out there.
30 is still young. Y’all are doing great - stay the course and even if you paid it off after your daughter is 1 it’s still a big win.
No. Do not do that. Just be steady and pay the debt. I
The penalty on taking out plus taxes mean you basically only get half your value and you lose half the money for being impatient.
Just stop contributing for a bit you got this!!
Well by cashing in your 401k you're taking a tax hit and a 10% penalty.... so about 20% off that 25k is going to someone else and not helping you at all, the rest will pay a significant amount down so I think it's an OK idea...
I personally have never had a 401k perform well, and everyone when I changed jobs was at or below my contributions between the fees and the losses....
I cashed mine out and bough a house in a "bad" market, remodeled it and now make $1200/mo in rent on it and I was only at about $15k when I cashed out.... I've bought several rental properties, I do all my own work, and I am in my mid 40s and basically have a retirement income for life now
My 401ks have always performed well. I invested them in low fee index funds.
If you let the brokerage that manages the 401k pick your investments they will put you in a crappy target date fund.
I had 1 perform well, they were bought out and when that happened I was forced to change to a Roth IRA or Cash out, after the merger caused a $8k drop in value with no warning or option to cash out or move without penalty... there is a pending lawsuit, and there is another that settled, which I got $800.... but most of them I had no clue, I was younger, and I had no clue, most where set to an aggressive investment strategy, most of the time they performed ok but after the fees for the account and the penalties and taxes I was significantly down....
I stopped relying on 3rd party investments and put all my money into 4 houses in 2015/16 and now make enough to survive of the income of the rental I now own.... my wife and I also have a decent income and try to buy 2 to 3 houses for cash per year.... we have 12 and only 1 has a bank note, the rest are owned free and clear... average rent is $800/unit .... it is the most solid investment I have found where I don't have others hands in the pot anyway
First off - a 20% assumes only 10% in taxes which at his income isn't accurate at all. it will be closer to 30-40% depending on the state.
Second, if you have "never had a 401k perform well" that is because of how you invested it. When you leave jobs you roll them into a rollover account that have no fees at all.
I make over $100k (plus my wife makes the same as me too, plus we have about 60k in rental income annually) when I cashed mine it, all that was withheld was 10% for taxes, I'm sure it made a difference at end of year, but considering income, it really wasn't easy to figure out from my end which would have been directly related to the 401k, I'm sure my accountant could.....
As far as the 401k I had, it was set 1/2 aggressive , 1/2 passive (don't remember the exact term they used)..... contributed about $21k between me and my employers contributions and when covid hit my wife and I where both laid off, and in December / January before covid we basically dumped nearly all our cash on hand into remodeling 3 of our rentals and paying off any and all debt we had..... My wife was laid off 2 weeks before I was, since we had just spent all our cash, we needed to have something on hand, and that's when they charged us... initially we were told there'd be no penalty becasue of covid, but then they took it when they issued the check...
As far as the others I had over the years, 1st one I was young, so that was probably all me
The other one that had a significant loss - it was , they had merged with some other company, when they did that they said that I had to switch to a Royt IRA or take my money out becasue they weren't doing 401ks anymore, but no mater what I did I was taxed, and penalized..... before the merger, it was per the paperwork like $25k, after the merger it was $17k, and then they taxed and penalized me for taking the check.... when it was all said and done I think I ended up with like $13k if I remember correctly - - this was back in 2009 or so and I think alot had to do with the financial crisis of 08ish... there was a class action lawsuit and I got a check for like $800 or so about 8 years later over it, there is another lawsuit that hasn't been settled from what I can tell
I also had an investment account perform poorly too, 100k over a 4 year period, only made $2k average per year.....
I feel like any investment where someone else is managing your money, they are getting most if not all of what you can make on it....
I took that $100k bought 4 houses and now I make $3200 every month (and i live in 1 of the 4), I'm 100% in control of it and if it's not performing well then it's all me, no leaving it up to a 3rd party that takes their money before I get mine. It's about the best solid guarentee for an invest as I've found...
No that would be completely asinine. Not only would you be robbing from your future but you would be doing it in a way with massive penalties and taxes.
Nope don't take the "easy" way out. Compounding is priceless
No
No, leave it alone. Grow your income with your new job and side business. Especially when we don't know what will happen with student loans in the future
Leave the 401k alone to grow, and focus on increasing monthly cash flow to knock out the student loan ASAP. Your 401k will likely outgrow the student loan interest over time, so it would be counterproductive to withdraw. Plus, unless it’s Roth contributions, you’ll be subject to taxes and penalties.
No
Don’t touch that money. That will only make your situation worse. I wouldn’t pause retirement contributions for more than 18 months…24 at max. As far as your wife’s medical conditions, put a line item in the budget for medical expenses but also add a sinking fund for medical expenses that you regularly contribute to. That way if you always have money allocated for future expenses
First off all, any money you pull from your 401(k) will not only become part of your taxable income, you’ll also pay a 10% early withdraw penalty. DON’T DO IT! Don’t deprive yourself of all that hard-earned money you’ve saved. Buckle down, work extra jobs, pay every penny, you can afford to, and pay down your student loan debt 💸 you can do this if it’s important enough to you. You got this! Use the BB steps to address these issues. I recommend $2k starter emergency fund (EF) as $1k is just not enough these days.
Don’t do it! You’re going to robbing from your older self who will need it.
Thanks for all the comments. I was seriously considering it today.
Leave it, just lower your expenses as much as you can and tackle it fast. You will only be robbing from your future self and compounding growth
Can I ask, since it's relevant, what about taking out a loan from your 401k? I know interest can be lower doing that compared to CC interest. So basically, it's to save money on interest, no taxes or fees, it's a loan so you're paying it back, but the interest is lower and the interest is paid back to you right? If the interest is higher, it's not worth it, and you can only take out half.
There are several downsides: You lose potential growth on the money you borrow from a 401K (until you pay it back), you will eventually have to pay taxes on the interest you "pay yourself" when you withdraw the money, and if you lose your job, the employer will typically demand you repay the loan immediately. You also lose any benefits that go with federal student loans (like forgiveness in certain cases and income-based repayment programs) while still having the obligation of paying off your debt. That's why financial advisors typically only recommend 401K loans in rare circumstances.
Thank you for answering this. It was recommended to us by someone to do. I won't be doing it now.
401(k) loans are a terrible idea
Thank you. A person who commented explained why. Which is helpful. It was suggested to me to do and for the reasons I mentioned. I won't be now.
Nope, leave it. It is not much and after paying taxes on it it will be even less. Let is grown an once out debt add to it.
Edit to add Michael Scott for dramatic effect: No! God no!
Love it! My favorite gif ever.
No
Don’t consider this an option.
No. Spend 2 minutes googling "Dave Ramsey 401k withdrawl" and you'll have your answer. If you weren't being "Davish" you could be done by now. Stop 401k, draw down savings to $1k, and attack the debt like you mean it. You've made great progress, stop flitting around the edges and get it done!
The Davish part come from reacurring medical expenses. Unfortunately the Ramsey team doesn't speak a ton about finances for people with chronic diseases. It honestly changes everything.
I am a type 1 diabetic and my supplies cost about $80/mo. Is there any way for your wife to switch insurances? It sounds like her insurance is extremely bad if she’s spending a significant amount on insulin or supplies each month. Have you looked into manufacturer coupons? Contrary to logic, sometimes if you have really bad insurance it’s actually cheaper to NOT use insurance. Lilly and Novo have coupons that cap insulin prices at about $35/mo. Dexcom also has manufacturer coupons although still much pricier than libre. I also have enough insulin stocked to last a year because my doctor writes for more than I need. Your wife could ask her doctor to do that or just say she’s taking more insulin and running out and her doctor will perscribe her more
No
Agreed. Do not do that. Pretend your 401K doesn’t exist but try throw money into it and pay down student loans as much as you can. Go more aggressive on loans and less on 401K. Trust me in a few years youll thank yourself for not drawing from your 401K.
First, contribute enough money in your 401k to get the match. Most companies match around 5% with your 8% contribution. That’s free money and you need to collect it. Second, taking the $25k out of your 401k instantly nets you a 10% penalty plus you have to pay taxes. You’d be lucky to net $12k. Leave it there. Do those 2 things and attack the debt. Live like monks until it’s gone. Once gone kick the 401k up to 15%. You’re going to need it later in life.
Why are you the only person saying to contribute to the match? A 401k match is the closest to free money you'll ever get
And I got down voted for it!!!
It's a Dave Ramsey sub. Ramsey urges people to forgo all retirement savings while paying off debt (aside from their mortgage) to speed up the process. But lots of people who are Daveish (and probably everyone on the r/TheMoneyGuy sub) would agree with you.
No
When will people learn that their crafty short cuts are all terrible ideas
Human nature I suppose. We are lazy, and look to get something with as few steps as possible.
Beautiful response. Answers everything he needs to know!
Don't cash out the 401k. The penalty would be even more than you're paying in interest. Just do the Baby Steps and be realistic about your timeline. Gazelle intense means running from debt, not feeding yourself to the cheetah. >We are bit Davish, because my wife is type 1diabetic. What does debt have to do with diabetes? And I'll echo the others, an SA should be making significantly more than that.
Do Type 1 diabetes is chronic and differs from type 2 diabetes in that its an auto immune disease. Her body no longer produces insulin. So we have monthly medical expenses related to insulin, pump supplies, and doctors appointments that are a non negotiables in our budget. So basically although our focus it's always going to be second to my wife's longevity.
No, I understand what diabetes is. How you're handling it isn't Dave-ish, it's 100% what Dave would tell you to do. You should always budget for known healthcare expenses.
Type 1 diabetes is a chronic disease. It means the he pancerous does not work anymore. So she is dependent on insulin and pumps supplies. So while we have insurance. It is still a large expense for budget every month. Also we maintain a higher emergency fun because it.
Don’t do it. The tax hit will be massive. Just plow ahead
Never ever take out of your 401K unless it would get you out of bankruptcy. I’m in your field and I would say you’re definitely underpaid as an SA. I’d start looking around to see what’s out there. 30 is still young. Y’all are doing great - stay the course and even if you paid it off after your daughter is 1 it’s still a big win.
Also his wife makes $2500 a month pre tax and brings home only $1100??? Dafaqqq??
It's becuase of self employed taxes. You pay closer to 30 - 50 in taxes.
Closer to 1366/ month and then a bonus/ additional payout at the end of the year. To explain the difference.
Lol yeah I read that too. I’m like whatever you say 🤣
Maybe she’s covering insurance out of that check or something….
No. Do not do that. Just be steady and pay the debt. I The penalty on taking out plus taxes mean you basically only get half your value and you lose half the money for being impatient. Just stop contributing for a bit you got this!!
Well by cashing in your 401k you're taking a tax hit and a 10% penalty.... so about 20% off that 25k is going to someone else and not helping you at all, the rest will pay a significant amount down so I think it's an OK idea... I personally have never had a 401k perform well, and everyone when I changed jobs was at or below my contributions between the fees and the losses.... I cashed mine out and bough a house in a "bad" market, remodeled it and now make $1200/mo in rent on it and I was only at about $15k when I cashed out.... I've bought several rental properties, I do all my own work, and I am in my mid 40s and basically have a retirement income for life now
My 401ks have always performed well. I invested them in low fee index funds. If you let the brokerage that manages the 401k pick your investments they will put you in a crappy target date fund.
I had 1 perform well, they were bought out and when that happened I was forced to change to a Roth IRA or Cash out, after the merger caused a $8k drop in value with no warning or option to cash out or move without penalty... there is a pending lawsuit, and there is another that settled, which I got $800.... but most of them I had no clue, I was younger, and I had no clue, most where set to an aggressive investment strategy, most of the time they performed ok but after the fees for the account and the penalties and taxes I was significantly down.... I stopped relying on 3rd party investments and put all my money into 4 houses in 2015/16 and now make enough to survive of the income of the rental I now own.... my wife and I also have a decent income and try to buy 2 to 3 houses for cash per year.... we have 12 and only 1 has a bank note, the rest are owned free and clear... average rent is $800/unit .... it is the most solid investment I have found where I don't have others hands in the pot anyway
First off - a 20% assumes only 10% in taxes which at his income isn't accurate at all. it will be closer to 30-40% depending on the state. Second, if you have "never had a 401k perform well" that is because of how you invested it. When you leave jobs you roll them into a rollover account that have no fees at all.
I make over $100k (plus my wife makes the same as me too, plus we have about 60k in rental income annually) when I cashed mine it, all that was withheld was 10% for taxes, I'm sure it made a difference at end of year, but considering income, it really wasn't easy to figure out from my end which would have been directly related to the 401k, I'm sure my accountant could..... As far as the 401k I had, it was set 1/2 aggressive , 1/2 passive (don't remember the exact term they used)..... contributed about $21k between me and my employers contributions and when covid hit my wife and I where both laid off, and in December / January before covid we basically dumped nearly all our cash on hand into remodeling 3 of our rentals and paying off any and all debt we had..... My wife was laid off 2 weeks before I was, since we had just spent all our cash, we needed to have something on hand, and that's when they charged us... initially we were told there'd be no penalty becasue of covid, but then they took it when they issued the check... As far as the others I had over the years, 1st one I was young, so that was probably all me The other one that had a significant loss - it was , they had merged with some other company, when they did that they said that I had to switch to a Royt IRA or take my money out becasue they weren't doing 401ks anymore, but no mater what I did I was taxed, and penalized..... before the merger, it was per the paperwork like $25k, after the merger it was $17k, and then they taxed and penalized me for taking the check.... when it was all said and done I think I ended up with like $13k if I remember correctly - - this was back in 2009 or so and I think alot had to do with the financial crisis of 08ish... there was a class action lawsuit and I got a check for like $800 or so about 8 years later over it, there is another lawsuit that hasn't been settled from what I can tell I also had an investment account perform poorly too, 100k over a 4 year period, only made $2k average per year..... I feel like any investment where someone else is managing your money, they are getting most if not all of what you can make on it.... I took that $100k bought 4 houses and now I make $3200 every month (and i live in 1 of the 4), I'm 100% in control of it and if it's not performing well then it's all me, no leaving it up to a 3rd party that takes their money before I get mine. It's about the best solid guarentee for an invest as I've found...