Money - Howell,MI

Question: Are you currently contributing to your retirement plan? If you are contributing and can't make the bills.. consider stopping the retirement contribution TEMPORARILY. If you are contributing over and above the "match", then change your contributions to only meet the match (that way you still get all the "free" money contributed on your behalf, but at the same time increase the money available for your immediate use each month).

If you are making the bills, please try to continue without touching the invested funds in your 401k. There are big tax penalties. There is a percentage penalty for early withdrawal (like 10 or 20 percent!) AND if you invested the money as Pre-tax money, then you will ALSO pay taxes on the ENTIRE amount you withdraw from the account (the amount you withdraw before the penalty is deducted). So, for example, if you were to withdraw $10,000, you might take a 10% penalty hit (-$1,000) AND you'd have to pay taxes on $10,000 (at 20% ? that's another -$2,000)... so you'd only Net $7,000 out of the $10,000 you withdraw from the account. It would be much smarter to just reduce what you are currently contributing each month as a method of increasing your income stream on a temporary basis.
Also, be aware, that once you do something like this... you change your mindset. Instead of your 401k being something that is for your retirement years, it will become your safety net in case you overspend on something.. and you might be more likely to dip into it again. It is better to radically change your spending habits to get your credit cards paid off, than to dip into your 401k.
You said you have done the little things... what about the bigger things? (Not dipping into your 401k)... but say... selling a car that you have a payment on and getting a little used $2,000 car with no payments, or trying going with only one car for awhile, if that is possible... That sort of thing...
Just a thought.

2 moms found this helpful

Taking money out of a 401k is an extremely bad idea for the reasons stated below, penalties and taxes. It should only be done as a last resort.

A lot of people don't realize how important a credit score is today. It can save you 10's of thousands of $$$. Keep making those house payments and credit card payments on time.

There have been lots of post lately about how to save money and cut back on grocery bills. Also, many people have recommended angelfoodministries. You may also want to consider eating a meal or two at a soup kitchen.

Don't touch your 401K and as others have suggested if your making contributions, stop for now.

Good luck.

1 mom found this helpful

NEVER dip into the 401K!!! Serious penalties and tax consequences. It will cost you A LOT to do that.
I feel like a broken record, but I cannot say enough about Dave Ramsay and The Total Money Makeover or Financial Peace books.
Get one of them (free) from your library and start working the baby steps today! The first thing you need to do is get an emergency fund in place (not your 401K!!!) for things like car repair, lawn mower costs, etc. See? You PLAN for emergencies first!
You can stop contributing to your 401K plan(s) for a time (6 mos. for example) if you think that extra cash in the paycheck would afford you wiggle room to work the plan.
Seriously, this is not magic, but it WORKS! My hubby and I have NO DEBT and a "paid for" house! The credit cards have GOT to go. Good luck.

1 mom found this helpful

IMO -- Do not use your 401k to pay off credit card debt. If you are forced into such dire straits that tapping into the 401k is absolutely necessary, then it should be to pay the mortgage -- In other words, a debt that has investment/equity potential.

Besides, there are tax implications to using 401k $s...I think?

If you can manage your monthly obligations, continue to do so and try to think in terms of years instead of weeks.

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Definitely do not touch your 401K under any circumstances. Please do not feel guilty about letting your home go if you need to - your health and sanity are FAR more important than bricks and boards (and "saving face" with your mortgage company, is really not necessary).

You don't mention how much credit card debt you have, but it may be in your best interest to check into filing a bky. Get rid of the credit card debt, decide what you would like to do about the house (you would likely have the ability to either keep or let it go in a Ch 7), and mostly likely protect ALL of the 401K from the reach of the creditors. The very worst scenario (and unfortunately I see it all the time) is people cash out their 401K totally to "get caught up" and then something happens where they end up with a bunch of debt anyways and end up filing bky after all - only now they have lost all of their retirement for absolutely nothing.

Good luck.

1 mom found this helpful

Sounds to me like you need to rethink your budget. If you can't buy food but have a lot of money in your retirement account, then you need to stop contributing to the retirement account right now, with the goal of contributing future raises into that pool.

Unless it is an extreme emergency, taking money out of your 401k will be a very costly mistake in the long run. No financial expert would recommend it, especially if it is to pay for things like groceries. You need to get a better handle on your budget if you are living beyond your means. You need to pay off your debt and then establish an emergency fun to pay for things like broken cars. You say you only use credit for emergencies but then say you use it all the time for food. Food is not an emergency, it's a basic component of a budget.

A better option might be taking out a student loan, if you are a student.

1 mom found this helpful

I highly recommend Dave Ramsey-get the book from the library or buy one on half.com. We have paid off $23,000 in about 2 1/2 years and are still going-it's tough but a great plan, no scams, just common sense and hard work. :)

Hi L., I have had to dip into our 401k on 2 occasions. Both were extreme emergencies when my husband lost his job and we had no other choice. If there were any other option I would have chosen it. To give an example of how much it costs you to use your own money... If you take out $10,000 one third will be held for federal taxes so $3,300 and you will also have to pay additional state taxes. So it can cost you $4,000 and you only wind up with $6000 out of the $10,000.

Taxes and penalties can often make it not worth it. However the big thing is this. IF you could erase all the debt AND not continue to use the credit card for groceries every other month, then it might be worth it. But if you're continuing to do those things then its NOT worth it because you'll continue to go into debt.

I'd focus on trimming even more. Skip cable completely, and get a basic phone and ditch the cell phones (as long as the penalty isn't too much if you're on a contract). Eat rice and beans at least once a week (very cheap and nutritious) instead of meat, and cut down on the processed foods. Eliminate candy, deserts, soda pop and juice, all have empty calories and are expensive. Also cut out snack foods like chips and crackers. PBJ is really nutritious and cheap as well.

Bottom line, you have to live within your means, loosing the house won't solve anything, you'd still have to pay rent and that can often be as expensive or sometimes MORE then a house payment, not to mention the environment isn't always so great. See if you can go down to one car (my husband and I did this for 5 months this fall), and plan all your shopping days for one day a week to cut down driving time to and from the store.

I know its tough, but you can do it! Best wishes!

There are usually penalties to cashing it out early. What is in there you wont get all of. I would check into how much you would actually get and see if it would even be worth it. Good Luck

If you are caught up and can pay everything on time each month, I'm confused on why you need to dip into your 401k? Most of us are stealing from Peter to pay Paul. Have you shopped around your home/auto insurance? I'm an agent in AZ and on average can save my clients $100 per month. Just an idea but I would not be considering "letting the house go" if you are able to make your payments each month. You are taxed major by withdrawals from your 401k, not sure it's worth it to you. Good luck, I hope you find something that helps.

I listen to Crown Financial on the radio and crown.org and their advise is to not dip into it. I did once and built it back up only to do it again because it was so easy the first time, now find myself 49, unemployed and no 401k. The advice they give instead of dipping into it, stop contributing for a period of time or just contribute a very small amount. The money you were contributing you would take that and pay down/off your credit cards. Glad to hear you are still managing to keep your payments up and good luck with the rest.

First things first, can you move some of your credit onto another card and close one or two cards? this will save you a monthly bill. I agree that touching your 401 is a bad idea, not only do you lose money but it is a temporary solution for a permanent problem.
If you cannot combine your credit, consider consolidating it. I went to a credit counselor, who took all my credit cards, and got the interest lowered and now I have one bill for all of them, which is about 50% os what I was paying after totalling them all up.
You can keep one credit card for emergency use only.... but with less bills you shouldn't need it.
Good luck, letting your house go right now is a horrible plan, i agree... you will be left with nothing to show for what you have already paid, and will have a hell of a time trying to get another home loan when you are ready.
Times are tough, I just went through all of this so I know how it feels.... My house was about to go for sheriff's sale, but somehow we pooled money and found a way to eliminate our credits cards and get our mortgage refinanced to a lower payment, and they tacked what we owed for back payment on to the end of the mortgage. So right now we are caught up, and it feels good...but it took over 8 months to get here.
My thoughts are with you!

I can totally relate. We have used our 401k a couple of times and the way we do it is we take a loan against it. That way you are paying yourself back. another thing you might want to check into (if you haven't already) is doing a loan modification on your mortgage. It took us almost a year but it finally went through and we lowered our house payment by almost $600.00 a month. I know what you mean about not wanting to let the house go. My husband keeps telling me we should file for bankruptcy on our credit cards but I have a really hard time with that. I know a lot of people do it but that doesn't mean it is for me. I worry every month if the money is going to be there for the bills. I am trying to keep the faith that things will soon be getting better. I wish I could just hit the lottery.

I completely agree with Denise P!!!! Also, something I learned in Dave Ramsey's FPU class; if you lose your job, quit your job, or are laid off you have to pay all that money back within 6 months. It is not worth the risk. If I were you I would revamp your budget and follow Dave's 7 Baby Steps to Financial Freedom! Check out Dave's website, and you can find all kinds of budgeting tools. http://daveramsey.com

Its only a year until you can probably get a job as a PTA and bring more money in, perhaps. Don't dip into the 401 K. And if you ARE paying for your house don't let it go (I mean you don't say what your equity is, how much the payment is or what you could sell it for, but the bottom line is unless you have an enormous payment, you still need to live somewhere).
In addition to using coupons, make sure you browse circulars and get the best price on grocery/food items--if you live near more than one grocery store, fruit market, etc, you can save a lot by buying the items that are priced best at each place. Sure it takes time and organization, but if they are nearby your home or nearby each other (so as not to waste gas money)it really pays to do this (the stores have lead items and they count on people NOT doing this to obtain a profit)

ok we original took out a loan to get an inground pool needless to say instead we paid two credit card off than we jack them back up used my retirement fund paid them again now because of certain emergancies and house being rpainted i have recently paid with incometax again one card and still paying the loan now my husband says instead of getting the inground because we can't afford to go on vaca that i need to pay both the credit and loan first i have paid this card 4 times off and the other 3 times the way i look at it is you always need a place to stay which is the house and you always will have bills so until your done with school I wouldn't do anything but keep up the struggle if you let your house go you end up in forclosure and renting which is showing your children how to loose,. Plus it is not good for your credit and you won't be able to recover for 7 years and that is extremely long time and you won't be able to get anything like a car a home anything you may need credit for for your kids nothing. I wouod stick it out. you have two kids if you was so worried about the bill why did you go back to school. thats whats draining the extra money. If your that struggling talk to someone who know what there doingin investing and can put you into a good plan without looseing everything your family and kids should come before bills and as long as you pay your house an utilities is all you need if your gonna stop paying something stop paying credit cards.

Updated

ok we original took out a loan to get an inground pool needless to say instead we paid two credit card off than we jack them back up used my retirement fund paid them again now because of certain emergancies and house being rpainted i have recently paid with incometax again one card and still paying the loan now my husband says instead of getting the inground because we can't afford to go on vaca that i need to pay both the credit and loan first i have paid this card 4 times off and the other 3 times the way i look at it is you always need a place to stay which is the house and you always will have bills so until your done with school I wouldn't do anything but keep up the struggle if you let your house go you end up in forclosure and renting which is showing your children how to loose,. Plus it is not good for your credit and you won't be able to recover for 7 years and that is extremely long time and you won't be able to get anything like a car a home anything you may need credit for for your kids nothing. I wouod stick it out. you have two kids if you was so worried about the bill why did you go back to school. thats whats draining the extra money. If your that struggling talk to someone who know what there doingin investing and can put you into a good plan without looseing everything your family and kids should come before bills and as long as you pay your house an utilities is all you need if your gonna stop paying something stop paying credit cards.

There are a FEW exceptions to dipping into a 401k that mean that you don't have to pay all the penalty fees. As I recall (talk to a lawyer, my recollection isn't spot on here), paying for your house & paying for school are 2 penalty free exceptions.

Talk to a lawyer or accountant. They will be able to steer you in the best direction.

I don't doubt that Dave Ramsey has good advice. I have personally not needed to follow it, but I do agree with the others NOT to touch your 401K unless it's a dire emergency.

My husband dipped into his 401K to pay down some debt a few years ago (before we were married). I never would have advised it, but he felt like it was his only option. It was not. You'll lose ~40-60% of its value because of the penalties. Plus, an accountant had told us when we were married that we were already behind the 8-ball for retirement the day we graduated from college. Great.

Your credit score is critical in life moving forward. So, do everything you can not to affect that. Don't file bankruptcy, don't be late on credit card payments, etc.

But, we have been fortunate to be able to make some money each year by using our Discover card for almost all of our expenses and paying it in full each month. We have everything possible on the cards (Day Care, cable, phone, cell phones, groceries). There's no penalty for paying it off in full, and you get a few hundred dollars at the end of the month. You just have to make sure not to spend any more than you would normally.

It sounds like you're doing all the right things. Michigan is one of the harder hit states in this whole economic downturn, but it will improve, and you'll be much better for riding the wave as much as possible without taking any extreme measures.

Good luck!