Withdrawal from 401K & 6 to 0 % Contribution

[Franco]

Well, here we go.... SO Rent in Arizona is rapidly rising, I received my renewal in my email, and my rent is going up from a base rent rate of $960 to $1,160! I already asked my Attorney if crap hits the fan, can I take money out of my 401K whether it be a loan, or withdrawal. He let me know that my plan was already confirmed, and I can take the money out BUT if I miss payments because of my loan payback, I'm screwed basically. I'm cool with that.

I just switched my contributions to my 401K to 0% from 6% because this will give me the extra $250 a month I need for the rent increase. I lowered all of my bills as far as I could get them, and tomorrow I'm calling COX Communications to cancel my internet service which will save me an additional $100 a month. I was thinking about doing a withdrawal from my 401K of $7,800, this would get me $5,460 after the 20% Federal & 10% Penalty to put in my Emergency fund. I know this is a bad move, but I'd rather have this $$$ in my Emergency fund NOW rather than let it sit there on Fidelity. I would still have $17,000 in my 401K after it was all said and done. I don't, and I mean DON'T want a loan! Sick of having payments! The good thing is that my CH13 is over in 2 years come September.

Lately I've been living check to check, even with me eating cheap, Peanut Butter & Jelly sandwiches & Water, it's tough, I have Doctor bills with my high blood pressure & diabetes meds also. The end is in sight, not far off, good thing is I lost 40lbs so far and my A1C went from 10.4 to 5.7!

Sorry for the rant, I guess I'm asking is it ok to just take some $$$ out of my retirement to keep myself afloat? It's getting tight, I'll pull through, but it's tough with my rent going up.

[justbroke]

The rant is fine. I actually don't like Cox Communications in areas where they are the only game in town. We pay $39/month for what was Verizon FiOS (Fiber Internet). It's now owned by Frontier and they charge $39/month for 500Mbps up and down. The competition is fierce in Florida! Generally I don't like how the cable companies have built a monopoly on Internet service and I feel bad for people in areas where there is no competition. (no competition = higher prices)

I would not do a withdrawal. If you're working, I would do a loan and pay it back. As you can see, a withdrawal comes with penalties unless you're over 59 1/2 (I think that's the age). You also get taxed on withdrawal. So why waste 30% on a withdrawal if you could get a loan?

I know you don't want a loan but withdrawals are a double whammy. Loss of investment (a loan accrues interest), and the heavy tax penalty. At least with a loan, say you don't use the emergency money, just pay it back. Or use that withdrawal to slowly pay back the loan. That is to say, put the loan proceeds into an account and use that money from the loan to either pay yourself back or pay back the 401(k) loan directly. That whittles down the loan proceeds as you have the buffer.

As you can tell, I don't like withdrawals. They destroyed me and my 401(k).

Just the rantings of a seasoned bankrupt.

[Franco]

The rant is fine. I actually don't like Cox Communications in areas where they are the only game in town. We pay $39/month for what was Verizon FiOS (Fiber Internet). It's now owned by Frontier and they charge $39/month for 500Mbps up and down. The competition is fierce in Florida! Generally I don't like how the cable companies have built a monopoly on Internet service and I feel bad for people in areas where there is no competition. (no competition = higher prices)

I would not do a withdrawal. If you're working, I would do a loan and pay it back. As you can see, a withdrawal comes with penalties unless you're over 59 1/2 (I think that's the age). You also get taxed on withdrawal. So why waste 30% on a withdrawal if you could get a loan?

I know you don't want a loan but withdrawals are a double whammy. Loss of investment (a loan accrues interest), and the heavy tax penalty. At least with a loan, say you don't use the emergency money, just pay it back. Or use that withdrawal to slowly pay back the loan. That is to say, put the loan proceeds into an account and use that money from the loan to either pay yourself back or pay back the 401(k) loan directly. That whittles down the loan proceeds as you have the buffer.

As you can tell, I don't like withdrawals. They destroyed me and my 401(k).

Just the rantings of a seasoned bankrupt.

Thanks JB! The thing is, I don't want the payments of a loan, even though I'd be paying myself back. The loss of the penalty makes it bearable to just take some $$$ out. I know it's a stupid loss, but in a way I would rather just have some cash in my account & not worry about having monthly payments to get into. God I can't wait for 2 years from now, it will be all over and I will be able to save $700 a month when this CH13 is over!

[shipo]

I am also in the "avoid a withdrawal at all cost" camp; I don't know your age, but your 401(K) sounds pretty thin as it stands today, depleting it further will definitely hurt you way more than loan. If you're fifty(ish) or older your odds of ever recouping that money are not good.

[Franco]

I am also in the "avoid a withdrawal at all cost" camp; I don't know your age, but your 401(K) sounds pretty thin as it stands today, depleting it further will definitely hurt you way more than loan. If you're fifty(ish) or older your odds of ever recouping that money are not good.

I'm 40 years old, and to be completely honest, with my high blood pressure, I don't even think I'll make it to 60 years old realistically. But then again, who knows? Life's a gamble right? I only have $26,000 in my 401K now as of this second. Once the CH13 is over I'll be able to save a lot of $$$. I can't wait for that day, my truck will be payed off, no more debt! As it stands, I have $2,400 in my checking account, and $3,000 in my savings account, but I need to pay $2,400 in taxes because I went exempt too long during Covid in 2020. I suppose the good thing is that I moved 1 mile away from my job 3 years ago, best thing I've ever done!

[flashoflight]

Franco I actually think you are in decent shape to survive the remaining portion of the chapter 13. As far as I'm concerned, the #1 use of the 401k is to survive the 13 at all costs if needed. The #2 use is retirement. I think it's a good idea to reduce the 401k from 6% to 0% to cover the rent. I know someone who did that right after confirmation. I'd keep the Internet but everything else cable can go. If you really have to, you can hotspot via the smartphone.

The 401k/IRA has one key property, which is it is exempt from the BK estate. So you should leave the money at Fidelity until you need it. If you set up ACH with Netbenefits beforehand, you can get the money in one or two business days if you need it fast. Just take out as needed to barely scrape by. Having money inside the 401k or IRA is better than in your checking account. For example, if you were buying a house while in a 13, the down payment has to come from the 401k/IRA or else the trustee will try to seize the money. That's just an example of how useful it is to have an IRA or 401k going into a 13. Unless you are in a 100% plan, I would not do a 401k loan because there is usually no room for a new post-petition payment.

[Franco]

Franco I actually think you are in decent shape to survive the remaining portion of the chapter 13. As far as I'm concerned, the #1 use of the 401k is to survive the 13 at all costs if needed. The #2 use is retirement. I think it's a good idea to reduce the 401k from 6% to 0% to cover the rent. I know someone who did that right after confirmation. I'd keep the Internet but everything else cable can go. If you really have to, you can hotspot via the smartphone.

The 401k/IRA has one key property, which is it is exempt from the BK estate. So you should leave the money at Fidelity until you need it. If you set up ACH with Netbenefits beforehand, you can get the money in one or two business days if you need it fast. Just take out as needed to barely scrape by. Having money inside the 401k or IRA is better than in your checking account. For example, if you were buying a house while in a 13, the down payment has to come from the 401k/IRA or else the trustee will try to seize the money. That's just an example of how useful it is to have an IRA or 401k going into a 13. Unless you are in a 100% plan, I would not do a 401k loan because there is usually no room for a new post-petition payment.

Thank You! Yeah I decided to just leave the money there, and to scrape by. The way I see it, if I really REALLY need the money, I'll take it out. For now I'll just coast. I wasn't happy to switch my contribution from 6% to 0% but hey, I need to make ends meet. Thank you to everyone on this forum, I appreciate all the advice, it's all a learning process I swear!