taking 401k

[momof5]

I do not understand why every time someone posts something about 401k people SCREAM out that they should NEVER touch it without hearing the details as to why a person might absolutely need that money.

This is a new day and age here folks. If we hadnt touched our 401k then we would be living on the streets with 5 children. To have someone tell me that we should NOT have touched that money is like telling us that its okay to starve and its okay to be homeless etc. Who cares what happens today but make sure that in 20 years you have money.

While its okay to remind people that there are tax consequences (although that is clearly stated in all the legalease that comes along with a withdrawal) .
I think most people who are in a position of desperation and have no other income or no other source of funds ,a little support on withdrawing 401k money would be better help.


I do not know the OP's situation but a 401k loan is NOT a withdrawal and does not have the same tax issues unless they default.

OP if you are in a position that you desperately need some funds to help you survive then by all means do a loan to get you through. Keep the amount to exactly what you need and can document. Such as groceries,heating bills,mortgage or medical. If you need a couple of thousand to pay for your attorney and these much needed monthly expenses to get you through a rough patch in the present time then you have to do what you have to do.

I am a firm believer that if you can't survive today then retirement isnt going to much matter.

[BKParalegal]

It is a mistake to consider your 401K, as you loose interest two ways. Your interest on the whole balance would be lowered and you also have to pay interest. It is a very unwise habit to start. 'Hub

First off the word is "lose" not "loose". Second, in some districts paying back a 401k loan is allowed as a valid expense on Schedule J and the means test. So check with your attorney before you pull the trigger (figuratively, since I don't recommend the So Cal guys way of dealing with his debt)

[frontier2005]

why would you take a loan right before filing?

to pay for attorney and shortage on living expenses. i have just about 23k on it and $1700 outstanding loan balance right now and will be done in 2 months.

[frontier2005]

thanks for all the reply, i think i might try to save money for the attorney instead of taking money from my 401k.

[HHM]

From a BK perspective, you can take it out, but as others have said, it would almost certainly be a mistake to do so. Although the funds are not considered income, they would be considered an asset and the trustee can question where the money went and possibly pursue the parties to whom the funds were paid if appropriate.

You are about to file chapter 7, the last thing you want to do is liquidate a protected asset.

[Tbornetun]

It cannot be discharged in ch7 bk, if that's what you were thinking. I would wonder if it's safe to do before bk, seems that if you need to take this loan then it would be better to wait until after bk? The trustee cant touch money while it is in 401k, but if you take a loan and have the cash in your pocket then I would think the trustee could take it? I would also wonder if the trustee could consider it income, and possibly make you ineligable to file a ch7?

I'm sure someone more knowledgeable will chime in, just my thoughts here..

FYI I attended the Minnesota CLE Bankruptcy Institute today.

New case law in our circuit has determined that withdrawals from a 401k, or other retirement plan, cannot be considered income. If you take too large of an amount though, the trustee can question where it went. If you can prove that the money went directly to necessary living expenses there is no problem.
I don't have the case in front of me to give you more details, but that is the jist of it.

In my opinion though, do not take any money out of a retirement plan prior to filing bankruptcy. Better to be safe than to have to prove it later.

[AngelinaCatHub]

TEW, I think they heard you two forums down the block.

[AngelinaCatHub]

It is a mistake to consider your 401K, as you loose interest two ways. Your interest on the whole balance would be lowered and you also have to pay interest. It is a very unwise habit to start. 'Hub

[TEW]

do NOT EVER borrow from your 401k

[AngelinaCat]

Don't You Dare Do It. Keep It For Your Retirement!

Whatever you do, do NOT EVER borrow from your 401k.

Your 401k IS exempt, and cannot be touched except by you. If you take money from it now, you will be paying a huge tax penalty on, lose the value of the money in your Retirement Plan, and essentially, you will be flushing that money down the toilet!!!

[jessegirl]

why would you take a loan right before filing?

[BearChaser303]

It cannot be discharged in ch7 bk, if that's what you were thinking. I would wonder if it's safe to do before bk, seems that if you need to take this loan then it would be better to wait until after bk? The trustee cant touch money while it is in 401k, but if you take a loan and have the cash in your pocket then I would think the trustee could take it? I would also wonder if the trustee could consider it income, and possibly make you ineligable to file a ch7?

I'm sure someone more knowledgeable will chime in, just my thoughts here..

[frontier2005]

is it okay to make a 401k loan before filing chapter 7? thanks