Why did you cash out your 401(k)?
I’m doing research for a post and wanted to know if you’ve ever cashed out your 401(k). If so, why did you do this? What did you spend the money on? Did you understand the tax penalties? I’m looking for stories. Good ones! Even better than the mattress excuse.
Please comment below knowing that I have the liberty to reprint it in a post.
I cashed out my very first one, to make part of the downpayment on my very first house — roughly $8k total.
The only regret I have is that the added “income” pushed me over the income limit to qualify for a $5k first time home buyer tax credit. Had I to do it over again, I would have taken out a little less to get that credit.
That investment made a lot of other opportunities available later, so for me it was the right call. I was also only 31 at the time.
I cashed out $3k of my 401K when I was laid off from my job. I had to roll the funds into an IRA and I chose to roll the funds and then deduct my $3k. It wasn’t much, but my unemployment benefits had run out and I just needed to buy a little more time. I paid through the nose in fees and taxes, but hard times will make you do some crazy things.
I cashed out and closed a 401k I had with a private employer after leaving the company in anticipation of a corporate downfall that was eminent. The reason was two-fold: first, I was fearful of the money being connected with the company as there was a history of the employer reversing electronic account deposits for bonuses and other deposits after-the-fact when economic times were rough; second, I decided to use the money to support myself during the brief hiatus from employment while I focused on furthering my career by finding the “right” place for me instead of having to settle into another job just for the sake of income.
Liza, Patti, SVD: Thanks for taking the time to share your stories.
Are there any others finding “hard times will make you do some crazy things”… please continue to share!
I cashed out my 401K from my first “real job” in the amount of around $4K. At the time, I had just set up an IRA to roll everything into. However in the end I decided to make a house purchase so it all ended up going into closing costs and getting the house live-able after being in foreclosure for a year. It granted me the opportunity to buy a home and wasn’t large enough to really hurt me too badly in the way of taxes and penalties. Had it been larger I probably would not have dipped into it.
Cashing out a 401k was the easiest and also most difficult decision I ever made. At 40 years old, I decided to take charge of my life and be more purposeful about the second half of it. The decision was based on the variable of happiness. I was not happy in my life before the decision and had an opportunity to move from the Midwest to the Pacific Northwest – my favorite vacation destination for over a decade. The only thing keeping me from reaching that brass ring was finding a way to finance the relocation.
I got a huge “do-over” thanks to some very close friends already living in the PNW. I didn’t hesitate when another friend suggested I cash in some retirement money in order to achieve a greater happiness in my present life. It would have been nice to avoid the penalties and taxes, and I could have probably timed the pay-out a little better (so that I didn’t double my “income” for the given year and thereby get hit with a much larger tax burden), but it achieved my objective – to close down one life and open up another life in a place where I feel at home.
However, now unencumbered with any financial debt and pursuing a career in an industry as a result of a conscious choice rather than simply falling into yet another job, my everyday life is full of personal enrichment and opportunities for gratitude. If asked whether or not I would do it again, I would answer, “Unhesitatingly.”