Should My Husband Cash in His 401K to Buy Some Cars? – Kris


“Dear Steve,

My husband worked for a company that filed bankruptcy. He got another job and has 401k with them now puttin in the max. He received a letter the other day telling him he had to do something with his 401k from the previous job. We just bought a house, I lost my job and we both have to have new cars. His is 11yrs old and falling apart, mine was 12 yr old died and I am using my mother’s car now but have to get it back to her. We cannot afford two car payments with our house and bills.

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Dear Kris,

The best course of action is to roll the old 401(k) to a new provider. Your current 401(k) company could assist you with a transfer if you want to move it there.

Many years ago when I was younger and foolish, I cashed out a small 401(k) and spent the money on some crap I can’t remember. If I had simply rolled the money over it would have been worth a lot today, even with the stock market decline.

If you cash out the 401(k) you will instantly lose about 30% of the money just to taxes and penalties. In addition, the money will neither be there nor grow for when you will need it most, in your older income producing years when you will need to eat.

Bottom line, cashing out the account to buy cars would be a complete mistake. If you wanted to take a little out for repairs, I’ll concede that, but that’s it.

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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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