Should one cash in 401k since market is way up to pay off mortgages and debts?

After having 401K's, usually out-performing the market, the hidden fees and such just drain away the compounding and matching.

It just seems wiser to

Even if one had a big 401k at retirement, you have to take out as little distribution as possible to avoid taxes from wiping out your funds. And you never know what taxes will be then.

It just seems more attractive (right now with the up market and lower tax rates) to cash out, pay off everything, and save. You can still invest in stocks if you wish.

Your thoughts?

10 Answers

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  • 1 month ago

    Unless you are 59 1/2 or older, withdrawals from non-Roth plans will result in you paying a penalty as well as paying income tax on anything that is withdrawn.

  • 1 month ago

    NO, No, No! Stop investing until you are out of debt except for your mortgage.

  • Eva
    Lv 7
    1 month ago

    Foolish. You'll lose at least 40% of it to taxes and penalties if you cash it out prior to 59 1/2. You may want to look at re-balancing your portfolio. Depending on how much your company match is, you also are leaving that money on the table.

  • Anonymous
    1 month ago

    Not only would you have to pay taxes on anything you take out, but you would lose another 10% on top of that.

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  • 1 month ago

    1 you don't cash out your 401k, unless you've left that employer.

    2 who has your 401k that is charging you big hidden fees??

    3. what is your income in retirement, if you cash out your 401k?? LOL - is Social Security going to provide you with lots of income??

    4. you lose one quarter to one-third to taxes when you cash out.

    Do you have any money in a 401k?? You seem very clueless about how these work. Or the problems with early withdrawal.

  • Amy
    Lv 7
    1 month ago

    Selling stock now seems like a good idea. But it has seemed good for a couple years, during which the expected crash still hasn't come. Staying invested usually pays off better than trying to time the market. And investing usually is a better deal than paying off your mortgage early. Or do you think you have some financial insight that isn't already priced into the market?

    Paying taxes now instead of later is a good idea if you're not in a high tax bracket. The first [Standard Deduction amount] in each retirement year will be taxed at a lower rate (0%) than it would be tacked onto your other income now.

    You can incur the tax now with a rollover to a Roth IRA, rather than pay the 10% penalty to withdraw the money to a non-retirement account. The IRA will also give you freedom to invest however you like, avoiding those hidden fees.

    In contrast, in a taxable account it will be capital gains tax that drains away your returns.

  • 1 month ago

    1) You normally can't cash out a 401k while you work for the sponsoring employer. Some plans have hardship provisions but this isn't a hardship.

    2) If you are under 59.5, it is not unusual to lose 40% or more of the value of the 401k due to taxes and the 10$ penalty.

  • Anonymous
    1 month ago

    What hidden fees? Buy something with low or no fees. Like FNILX.

    i would not close a 401k because you think the market is high. Timing the market is a losing proposition.

  • Anonymous
    1 month ago

    You talk about avoiding taxes and yet you think cashing out a 401k to pay bills is a good idea? You're nuts.

    "You can still invest in stocks if you wish." If you had intended to use your money to pay off bills, you should have invested in a taxable account and skipped the 401k. You could have avoided the 10% early withdrawal penalty and you'd be taxed at long term capital gains rates, not income tax rates.

    I put $18,500/year into a Roth 401k and $5500/year into a Roth IRA. At retirement I will have zero income tax on my 401k and will also have zero required minimum distributions. I'll also have lower medicare premiums because those are based on taxable income.

  • Fuhr
    Lv 6
    1 month ago

    You will immediately pay full tax on the amount plus a 10% early-withdrawal penalty. Cashing out a 401k is never a good option unless you have no other choice and are facing a financial emergency.

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