How to borrow money from 401kIRA??? Help!
I have a 401k with my old company (I stay at home now) worth about $28,000. I have CC debt that I need to get out of ASAP in order for my husband to get the loan he needs to buy a new practice. (our balances to max ratios are not good) I know with a 401k you can get a loan, but since I don’t work there anymore, I don’t think that is possible??? And if I roll it over to an IRA or something else, then I think I still can’t borrow it.
What should I do?
Should I roll over my 401k?
Should I take the hit and make my payments back to my account?
I feel like this is all my money and I am at a point where I need it. I am not even 30 yet so I have some years to build my retirement, but gotta get outta this mess somehow. Please help!!!
Permalink Submitted by Alan Spross on Fri, 2008-02-15 20:55
Unfortunately, your conclusions are correct. The only way to access the 401k money is to take the distribution directly or from an IRA that received a rollover. Either way, you face ordinary income tax and the early withdrawal penalty of 10% on the funds.
If you could get a position with a company that accepts transfers of other 401k funds into their plan, you could then qualify for a loan from the plan, but only up to 50% of the $28,000 balance.
If you transferred the old 401k to an IRA, you could withdraw the funds from the IRA for up to 60 days, but would then have to complete a rollover to prevent the distribution from being taxed and penalized. This would only work if you had other prospects for replacing the money within the 60 day period, and just extends the problem a couple months.
That’s about the only options that utilize the present 401k balance.
Permalink Submitted by James Garland on Sat, 2008-02-16 00:49
One of the advantages of rolling the money to an IRA before the withdrawal is that if you withdraw the money from the 401K the trustee is required to withhold 20% of the distribution. That requirement does not exist on a withdrawal from an IRA so you would have 20% more money immediately available that if you were to withdraw from the 401K