Non Vested State Pension - What To Do!?!

[emsy1]

Hi Everyone!

I left my State job with 8 years in to the pension but I did NOT vest before leaving (10 years were needed to vest).  The account has about $28,000 in it.  I can take it out with a 20% hit -or- I can roll it over to another retirement plan.  Here's my finances:

36 + single
$73k/year job (just started a month ago - I'm already vested in the new pension and it is a matching pension)
$120k in student loans (yikes)
$15k in credit card debt at 8.99%
$115k mortgage ~ $900/mo. with taxes and insurance included
$150/mo. utility bill
$100/mo. phone/internet bill
$200/6 mo. car insurance payment
No other savings
No other debts

I'm thinking about taking the whole amount out and paying off my credit cards and then reinvesting the remainder.  Thoughts????

[ShoulderThingThatGoesUp]

What are your student/home loan interest rates and resultant payments? Can you take out only a portion?

[Gone Fishing]

How do you figure the 20%?  Be sure to manage your taxes well as your salary will likely put you squarely in the 25% bracket (plus any state taxes).  I would probably roll it over.  With your new job, you should be able to knock out that credit card debt pretty quickly.  Can you transfer your CC balance to a 0% offer? What are your rates on your student debt? 

[fields]

Roll it over and let it grow--don't touch it!  (One of the) worst mistakes I ever made was taking money out of my retirement funds.  You can pay off your credit card debts in other ways.  Transfer to a 0% offer.  Get a second job until it's paid off.  Sell some stuff.  If you break down your income/expenses further here, we may be able to make some other suggestions. 

[emsy1]

Thanks everyone so far for the help!

-The 20% is required by the State of NJ when I take the pension out.

-Can't take out only a portion and roll over the rest.  I checked :-(

-I've been trying to pay off my credit cards since I was 18 but keep getting stuck.  I've rolled them over onto 0% interest cards before but just dig myself further in.  BUT I've started a new job that pays a bit more and the cost of living is MUCH lower here than in NJ so I should be better about paying it off.

-Student loan rate = 4.25%.  I work for the government so after 8 more years I will get any remaining loan balance forgiven so long as I'm still gov't employed.

-JUST bought the house. Mortgage will be at 4.18%.  Haven't even made my first payment yet!

-DEFINITELY want to explore a 2nd job.  I have weekends free so there's no real reason why I can't work more.

[Gone Fishing]

http://benefitslink.com/articles/taxbite.html

It appears that 20% could just be the withholding rate.  Come tax time, it could end up being much worse, perhaps as high as 40% (10% penalty + 25% Fed Tax + 5-6% state tax).  I'm interested to hear what the CPAs think.

[former player]

At 36 you are old enough not to want to start from scratch with a pension, even without the tax penalties for taking the money out.  Also, your credit card is hair-on-fire debt that you have been living with for 18 years.   If you use your pension to pay off your credit cards I'm worried that it will be an "easy" win for you and you will end up building the credit card debt back up having gained nothing and lost your pension contributions.

You need to knock that out asap and certainly within the next six months.   Live like an extreme mustachian and put every penny you have towards it.  Then cut up the credit cards and use debit cards only until you are certain you can trust yourself to pay off a credit card in full each month.  You've got a more than decent income for a single person: financial solvency is within your grasp.

You need to do the math (financial costs and personal costs) on the student loans: would paying them off aggressively be a better deal than being locked into your job and making payments for the next 10 years?

[emsy1]

You need to knock that out asap and certainly within the next six months.   Live like an extreme mustachian and put every penny you have towards it. 

I think I'll take this advice :-)

[JLee]

This is what I would do-

Transfer credit card into 0%/15mo Chase Slate (if you can) and stop using credit entirely.
Roll retirement account over - don't withdraw it.
Pay minimum payment on the student loans if you are planning on staying for 8 years.
Get a roommate. Depending on where you are, you could be looking at $400-1200/mo for renting one or two rooms.

What does your monthly net income / expenditure list look like?

[Bicycle_B]

Is it possible you might someday return to the pension system where you didn't vest?  If so, quitting now could cause you to lose large benefits you would instead qualify for if you stay in. 

In a slightly similar situation, I recently found that a pension system where I had just a few years of credit will actually allow me to return because I never took the money out. I can also get credit for the intervening years worked in a job with a different govt agency.  Because of these provisions, it appears that if I get a new job with certain employers, I can re-enter the pension system and qualify for full retirement in just 5 more years!  Until last week, I did not realize how close to full benefits I was.

So examine the documentation of your pension very carefully before leaving it.  You may find that there are potential benefits in staying. 

Also consult experts from  both of your pension systems, and research whether any nearby govt pensions work together.  In my state, 9 separate government agencies (including several separate agencies from the state government) have pension plans that can give partial credits to each other.

The other question is does the pension have any guarantees of appreciation.  Even just a few percent a year, as some have, mean it can stand on its own as a wealth accumulation vehicle while you wait for your career to evolve. 

I support the idea of using other, more Mustachian means to pay the credit card debt.  The pension, even the non-vested one, may be a special piece in your financial independence game.  Like a knight on a chess board, pension funds have weird and special powers sometimes. 

Anyway, best of luck!

[MrsPete]

First question I'd ask is, How stable is that NJ pension?  Someone asked whether you might one day want to return to state government, and it'd be nice to be able to step back into that pension plan with a nice bit of savings already in place.  IF you think the pension is stable, don't touch it. 

Do NOT withdraw the money under any circumstances.  Losing 20% off the top is unacceptable, but then in addition to that you'll have to report an extra $28,000 as earnings next year.  That'll vault you up into a new tax bracket, taking even more of your money.  Better to roll it over.

As for the credit cards, you say you've been piddling around with a balance since you were 18?  Dude, that's stupid.  Half your life, all your adult life, you've had this sword of Damocles hanging over your head.  You've thrown away more than the $28,000 that we're discussing on interest.  You're earning a good salary. Just do it.  No excuses. Put every penny you have every month towards this balance, and then never get yourself into this foolish place again.  No eating out, no movies, nothing for the new house, no whatever you typically spend upon.  NOTHING but groceries and your mortgage until this is done.  You should be able to knock out 15K in a year -- probably less -- and then you'll be free. 

Then start saving. 

[lakemom]

In addition to all the great advice already given, do not, do NOT, DO NOT fall into the trap of "needing" this and "needing" that for the new house...that will just trap you in the debt cycle longer.  We lived in our first home for 3 years (with 3 kiddos) with no furniture in the living room.  Our couch and tv were in the family room and the living room was just a big empty room.  We were eventually gifted a hand me down living room set that we then kept for another 20 years!  We spent the money we'd been saving towards furniture on a home improvement.  Each time you "need" something for the house, write it down then challenge yourself to either find it used, do without it, or wait until you can pay cash for it (really pay cash for it...not the pay cash for this but then charge that on the card because I don't have enough cash for both).