Author Topic: If i new I would have never gotten a 401k  (Read 4929 times)

sowantere

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If i new I would have never gotten a 401k
« on: May 14, 2012, 02:39:35 PM »
So here is the deal.  I am debt free: house, car, everything and want to start ERE by selling my Current house and buying 2 foreclosures/shortsales in cash.  One to live in, one to rent.  So today I went to cash out my 401k.  Yes I know I will have to pay taxes and take a 10% penalty.  We all obviously plan on retiring earlier than  65 and I dont want to do a 75b so the earlier I withdraw it the less of a 10% hit I take and my 401k plan sucks.  But little did I know how bad.  The company I work for told me I CAN NOT close and withdraw my 401k with them as long as I am an active employee with them, I have to quit, retire, or die.  I can take out a hardship loan where I will then pay back "myself" with interest back to the 401k I laugh at the myself comment because if it was my own money I could touch it.  Basically I have 38k sitting in an account I cant touch, or 24k after the 10% and taxes.  Thoughts? Anyone else been told they cant close their account?

gooki

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Re: If i new I would have never gotten a 401k
« Reply #1 on: May 14, 2012, 03:53:44 PM »
Borrow the $24,000 (from what every source gives you the lowest interest rate) you need and keep the 401k.

You do plan on living past 65 right. So no problem having a small amount of money locked in a investment until you reach that age.

sowantere

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Re: If i new I would have never gotten a 401k
« Reply #2 on: May 14, 2012, 04:35:32 PM »
Basically I will just save up the money.  I no longer believe my 401k is an investment but is a liability as the mutual funds do not perform well that are offered and I must keep the money there until 65 or until i quit.  I would rather pay taxes and have the option of using the funds for whatever investments I choose.  So I will no longer use a 401k.  The match is 3% on 6% so basically saying if you give two dollars we will give 1 but then the losses and administration fees come which makes it more like a savings account you cant touch which is silly because saving money isn't my issue.  It is learning to invest which is why I did a 401k while paying off all my debts.  It seemed a good way at the time to "safely" invest in retirement while learning how to do it on my own.  I was just surprised that one couldn't cash out an account at will and pay the penalties.  After review on the internet it is quite common for companies to do this.  It just seems a great way for them to collect administration fees.   I will remain debt free while starting to invest as it just seems the right way to start a business to me.  Maybe when I get some traction and learn more about buying and renting houses I can borrow some on every 3rd or fourth house.  Currently there are 1500 sq ft 3/2 bath foreclosures near where I work for 60k that just need a coat of paint.  It seems like a better bet than mutual funds than the funds offered in my 401k. 

grantmeaname

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Re: If i new I would have never gotten a 401k
« Reply #3 on: May 14, 2012, 04:43:26 PM »
Why don't you roll the 401k into another retirement account like a traditional IRA?

Don't underestimate that match, either. That's an instant 33% 50% ROI!

edit: oops.
« Last Edit: May 15, 2012, 11:27:17 AM by grantmeaname »

arebelspy

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Re: If i new I would have never gotten a 401k
« Reply #4 on: May 14, 2012, 05:13:26 PM »
I'd wager it's still worth contributing the minimum to get the match.  I can't imagine their fees will not make a 33% immediate return worth it.  No way.

You may not "want to do a 75b" (I assume you mean 72t), but it's a good way to access that money penalty free.

Otherwise you can access it after you quit, though it will have penalties.

Why do you need it right this second?  Sure, you may not be able to touch it right now, but they let you have it when you quit, and if you're planning to ERE, you'll have access soon enough.

Trying to get it this second seems like a catalyst for a bad investment decision to me.
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TLV

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Re: If i new I would have never gotten a 401k
« Reply #5 on: May 14, 2012, 05:27:20 PM »
my 401k plan sucks.  But little did I know how bad.  The company I work for told me I CAN NOT close and withdraw my 401k with them as long as I am an active employee with them, I have to quit, retire, or die. 

That sounds pretty typical for a 401k - I don't think I've ever heard of one that would allow withdrawals or rollovers while you still worked for them.

Praxis

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Re: If i new I would have never gotten a 401k
« Reply #6 on: May 15, 2012, 09:51:02 AM »
You should definitely put in the match.  It's an instant 50% ROI- you put in money, and they add 50% to it.

When borrowing money, it's viewed as an asset, so if you do real estate investing for example, you can show it as an asset to borrow against.  Also, you can borrow money from it directly and you pay it back with a low interest rate- to yourself.

Imagine buying a house on your 401k borrowed money.  Then the "interest rate" is just forced savings!

arebelspy

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Re: If i new I would have never gotten a 401k
« Reply #7 on: May 15, 2012, 11:18:21 AM »
You should definitely put in the match.  It's an instant 50% ROI- you put in money, and they add 50% to it.

When borrowing money, it's viewed as an asset, so if you do real estate investing for example, you can show it as an asset to borrow against.  Also, you can borrow money from it directly and you pay it back with a low interest rate- to yourself.

Imagine buying a house on your 401k borrowed money.  Then the "interest rate" is just forced savings!

Right, 50%, I didn't look at sowantere's second post, just grant's.  50% instant return is way worth dealing with the slight hassles of a 72t, and dealing with some extra fees you wouldn't otherwise have.  Definitely contribute to get the full match.

And agreed on being able to show it as an asset; I use retirement accounts to show "reserves" when purchasing a new property.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.