Question

Need advice!  I have about $25, 000 of debt left to pay.Need advice! I have about $25, 000 of debt left to pay. With the CARES act, I am able to cash out my 403b without penalties. There's about $28, 000 in there. I am 30 years old. Would you, cash it out, pay off your debt and increase your 403b contribution with the amount saved from your monthly budget? Or, would you leave it as is with an expected pay off for my debt being about 20 months?  

Answer 1

You may not have penalty BUT if money was placed pre-tax funds you will have to pay taxes on what you get out too!  

Answer 2

I would leave it and pay off debt in 20 months

Answer 3

Leave it!  

Answer 4

Yup don’t touch it!  

Answer 5

Good question. I’m interested to hear the reasoning behind people saying leave it in there since Dave says don’t contribute to retirement until you’re out of debt.  

Comments

Nevermind. Just realized this isn’t in the Dave Ramsey group ‍♀️

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@gate9 I wouldn’t be contributing while in debt, but I wouldn’t cash it out either.  

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We are okay with it taking a little longer to pay debt off. my husband is the breadwinner. he is in a step program with his work for his 401k. They take around 300 from his paycheck a month. We have never seen the money since he started working so it has never been factored into our budget. But at the time we started to really focus on debt we did not owe (aside from house) more then 15k between cc, auto, medical collections. I guess it's really a personal thing.  

Answer 6

The markets are very volatile right now - I wouldn't touch any investment if I could help it.  

Answer 7

Don't touch it.  

Answer 8

Oooohhhh following! I just had this same discussion with my husband last evening and he tells me I should cash out and pay the debt ($35K). I said heck no!  

Answer 9

Leave it and get a plan to get out of debt as fast as possible. Contact me if you want assistance in putting together a plan.  

Answer 10

Any particular reason why? I guess my thoughts are, I've only been contributing for the last 4 years at 6% with a company match of about 3%. So, being I'm only 30 and would then be debt free, I'd have the financial ability to increase my contribution to say 20 or 25%.  

Comments

@cardiff1161 first the penalty is waived only if you’re affected by Covid. Loss of income, diagnosis of you or a family member. And though the penalty may be waived you will still owe taxes. They can be paid over 3 years.  

Answer 11

I would pay it off  

Answer 12

$25K isn't that much. Stop contributing and put your intended contribution toward your debt.  

Answer 13

I would leave it alone and continue on course with debt payments

Answer 14

Would you take a low interest 401k loan out to pay high interest credit card debt?  

Comments

@otilia3 I did this, early 2019, but the value of my 401k was much higher so it worked out. I borrowed when the value was high and am paying it back now, almost done  I don’t know that I’d recommend a loan now with the market as low as it is.  

Answer 15

Don’t cash out. Just keep steady at paying off your debt

Answer 16

I would not cash it out maybe stop contributing but no way would I cash it out. I am 36 and have just over 2000 because I have been a stay at home more for most of my adult life. You will need that one day and it will grow.  

Answer 17

NO! market it low, so when it rebounds you wouldn't have anything left in there to rebound from. How long would it take you to get back to 28K? That's how many years of compound interest you'd lost. Unless you are the verge of bankruptcy or losing your house let it be. IMO.  

Answer 18

Do not cash out, however with your age you could slow down contributions for a while to help pay off debt faster. Would not be my first choice, better to squeeze the budget tighter or take on a side hustle.  

Answer 19

I would not cash it out unless it was absolutely necessary. I would stop or reduce the contribution to help pay off the debt, but not remove it all. You will lose ground.  

Answer 20

Leave it and continue to contribute enough to get your company match, that's free money.  

Answer 21

Don’t do it ! Just stop contributing as much so you can pay off the loan faster and then beef up contributions after

Answer 22

Stealing from your future won’t help long term.  20 months is NOT long at all. Keep making your payments and keep your future secure!  

Answer 23

I’d leave it and pay off maybe consolidate the debt

Answer 24

Thank you everyone! I guess I was hoping for instant gratification. I'll keep plugging away  

Comments

@cardiff1161 when you’re 55 (or whenever ) and have lots of money in that account you’ll be so happy you chose to “keep plugging away”. I know it seems like a long ways off but it really isn’t. Stay strong!  

Answer 25

Leave it and keep working to pay debt - compounding interest will be worth it!  

Answer 26

Actually, I would. Since you said you can pay off that in debt 20 months, then I would assume you can save that money right back up in the same amount of time. I'd rather spend my months saving than wasting money on interest and owing others.  

Comments

@morality Cuff also my thoughts.  

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@cardiff1161 does your plan allow a loan? It’s still not optimal because the market is low right now but you don’t pay taxes and the interest you pay back to your own account

Answer 27

I wouldn't cash it out. You will still get taxed on it at the end of the year.  

Answer 28

I’m glad you asked this question, I was asked at work if I was going to do the same thing, I said no but I kept thinking about it, it would feel so good to be debt free instantly but I know how long I’ve been paying in, I do have a loan out thru my 401k from several years ago and I’m still paying the next 18 months on it at 4. 5% interest, but I borrowed that money from myself and I’m paying it back to myself

Comments

@asti87 under the cares act you are suppose to be able to spend those payments for one year.  

Answer 29

Do not cash out your retirement. I don't know what kind of debit it is, but CC companies can not go after your retirement. Plus two words: compound interest. PLUS, you'll still pay taxes on it so that will decrease your payout. Get on a tight budget and pay off debt.  

Answer 30

No! It's not an emergency. Don't touch retirement accounts early unless you are in bankruptcy or foreclosure.  

Answer 31

Never cash in retirement. penalty or not

Answer 32

Not at all

Answer 33

If you are not in risk of losing the roof over your head then absolutely not! Compound interest can never be made up!  

Answer 34

No, just read a note from my financial advisor. You are going to lock in recent losses and you will loose the benefits of compound interest. Plus, valuable lessons are learned as you go through your journey of paying off debt. It is these painful sacrifices and lifestyle changes that will keep from ever being in this situation again. Plus, read the fine print. It sounded to me from a cursory glance that you have to be impacted by Covid in some way.  

Answer 35

Don’t cash out your retirement

Answer 36

Dont touch it. Leave it and continue to pay your debt

Answer 37

Don’t do it

Answer 38

Nope. Don’t do it.  

Answer 39

You are better off just attacking your debt and leaving your 403b.  

Answer 40

Another consideration would be a loan against it through your employer ?  

Answer 41

I wouldn’t cash out now. You would be locking in the losses while the market is low.  

Comments

I would only cash it out to survive. For example . to prevent losing your home or you need the money to feed your family.  

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@meadows6 we just did this. My husband lost his job due to COVID restructuring and we have no other income. Between that cash out and his severance, we can live while he job searches ❤️

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@hylo8 sorry to hear about that.  This situation is a perfect reason to pull that money out. I’m glad you were able to! Hope things pick up for you soon! Stay strong  you guys got this!  

Answer 42

Never cash in your retirement! Just keep paying your debt.  

Answer 43

Your future little old lady self needs that money.  

Answer 44

Leave it! Just be patient and get to the 20 months

Answer 45

Leave it.  

Answer 46

No don't do it

Answer 47

I wouldn’t do it! (I’m currently in a few tax classes in law school, and there are a lot of strings attached to cashing out right now! Like having to put that amount back within 3 years)

Answer 48

I cashed my out! I was 37! I was drowning.  

Answer 49

20 months is a better plan than cashing it in. The pain of that 20 months will be a much better teacher so you won’t threaten your future with debt again.  

Answer 50

No, no, NO. Taxes are ONLY going to increase and retirement won't be a thing if you're not working towards it diligently.  

Answer 51

Don't touch it!  

Answer 52

Did it take more than 20 months to get 28k in your 403? I would leave it and just continue on your debt payoff plan

Answer 53

I would cash out and pay off so you aren’t paying interest and then pay it back with in the 20 months.  

Answer 54

Leave it

Answer 55

Leave it!  

Answer 56

Leave it