This is a hypothetical question
;)
My question -- Is it possible to take advantage of a 401k company match to grow money immediately to use to pay off extremely high interest debt and/or jump start savings.
Part 1 -- Imagine there was a person who was in extreme debt and/or did not have any savings. Let's say their company matches 100% of 401k contributions up to 5% of their paycheck. Could that person put 5% into their 401k, receive the match and then immediately cash out? Before I get any further, is this even possible? Are you allowed to make 26 401k withdrawals per year? Is there a limit or any restrictions?
Part 2 -- If there are no legal restrictions to this plan, I'll continue. Let's say 5% is a $100 contribution per paycheck. With the employer match, this doubles to $200/paycheck. The person then immediately withdraws the money and pays $64 in fees and taxes (10% penalty on $200 + est 22% tax rate on $200), leaving them with $136. This is an automatic 36% gain that can be used to get rid of nasty debt or throw in an E-Fund.
Let me know what you think!