I’ve Got a 401(k) Just Sitting Stagnant. – Steve

“Dear Steve,

I am a state employee and am fully vested in the state’s pension plan.

My job is secure and I will be able to retire with a full pension. I also have an older 401k from a previous employer with approximately $30k just sitting stagnant. My wife and I have some credit card debt and a home equity line that I would like to pay off by cashing in the 401k. This would allow us to save more and also set up college savings plans for our children.

Knowing your dislike against cashing in a 401k early (and thus paying the penalty and taxes), is there any reason for us to carry this “luxury” 401k when my retirement income is secure and we have debt we would like to resolve?


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Dear Steve,

How secure are state pensions, really? I never thought I’d see reductions in benefits but over the past few years we’ve seen that happen. Just be aware that your state pension is not a firm 100% given at the levels you may currently assume. I really prefer the belt and suspenders retirement approach when it comes to a time in my life I’ll need money but can’t earn it.

I’m not going to try to convince you one way or another. Just please consider that a 401(k) sitting “stagnant” should be building value. If not, maybe it’s not invested in the right funds. The major mutual fund companies have solutions that will allow you to transfer the old 401(k) so you can self-manage it and be more involved with it.

If you want to take the tax hit and penalty and use it for another purpose, it’s your money. Let me know what you eventually decide to do. I’m interested.

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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