Can I Take Out My 401k To Pay Off My Student Loan Without 10% Penalty?
I just graduated from college this May and the student loan is due this November. The 401K I had with my previous employer (1999~2005) is about 10K and my student loan is about 11K. I am thinking about withdrawing the fund to pay off my student loan. I am sure I can do that but I am not for sure that I won’t get a 10% penalty. I need professional advise, please help.
newinfin said
am January 15 2010 @ 2:01 am
Dude, don’t do it. Just pay off your student loans the regular way, with monthly payments. You’ll need that 401K when you retire. Don’t spend it. If you spend all of it, you’ll have to spend a lot of time rebuilding it, of course, minus the interest you’d have gained during that period. If the IRA has larger interest than the student loan, you’d have to be an idiot to withdrawal it.
If you do decide to withdrawal: if it is a Roth IRA, you can withdrawal only what you have put in, not the interest. (In other words, not everything). If it is a regular IRA, don’t withdrawal anything, but consider turning it into a Roth IRA. (They’re better.)
shmoop84 said
am January 15 2010 @ 8:10 am
Yes, you will pay 10% penalty and then have to claim that 10k as income on your annual taxes and pay 20% MORE.
A first time home buyer can withdraw up to 10K penalty free one time only….
that is about the only way to get $$$ out of your 401K without paying penalties before you are retirement age…unless you become disabled..
You can borrow against the 401k and pay yourself interest…but why would you? Student loans generally carry 5% ish or even less interest rates……and the payments are generally very modest……the entire student loan isnt due in Nov….you can make payments on it.
walkerho said
am January 15 2010 @ 9:17 am
You will have to pay a penalty and taxes on a 401K withdrawal. The only reason you can get money from your 401K without a penalty is for a hardship withdrawal. Which is usually for people who are looking at their home being forclosed on.
CowboyBi said
am January 15 2010 @ 1:03 pm
No. And it is more like 20% with taxes.
Wordpress Autoblog Software said
am January 15 2010 @ 5:03 pm
you will get a 10% penalty AND pay income taxes on it – which is another 20% – the only way you can take it out w/o penalty is for a hardship, and this wouldn’t qualify.
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am May 23 2010 @ 9:50 am
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