Talk me through closing a 401k
September 27, 2012 2:35 PM Subscribe
I have lost my job, and I want to use some of the money in my 401k to pay my bills, but not all of it. I would like some details about the next steps, if you have experience with this.
posted by anonymous to Work & Money (20 answers total) 4 users marked this as a favorite
I have about $25,000 in a 401k. I owe about $6000 on a pretty high-interest loan and a credit card. Because I am not sure how long it will be until I have another job, I would really like to pay this $6000 off, rather than continue to pay the monthly bill while I have no income.
I also have a $3000 loan that I took from my 401k, and I know I will need to pay it back because I have lost my job.
I still want to earn interest on the money that I don't need to pay off the bills. So, the way I see it, I would like to take about $10,000 from my 401k ($6000 to pay the first loan and credit card, $3000 to pay the 401k loan, and $1000 just to have for emergencies). I would like to keep the remaining $15000 in some kind of retirement savings plan to earn interest.
I really have no idea how any of this works, and I would love step-by-step information and advice on how to get the most out of my money.
I am aware that I will have to pay taxes on the money I withdraw (20%, I think, which is lower than the interest on the loan/credit card, so I feel okay about it). I also hear that I will have to pay a 10% penalty to the 401k company (Fidelity).
I am wondering if I keep the remaining $15,000 with Fidelity, do they wave the penalty? Can I even have a 401k if I am not employed and not contributing to it?
Also, can I use the money I withdraw to pay the $3000 loan I have with Fidelity?
I'm confused, and I want to make sure I handle this well.
Thanks for the help.