Has Anyone Cashed Out Their 401(k)?

[SDHNTR]

Any advice on what to do with an inherited 401(K)? I know I have to do something with it within 10 years but I’m a little stumped on how to maximize it while reducing tax burden.

Call me dude.

 

[Cowbell]

How'd you come up with that number?

I know a married couple has a 50/50 change of one spouse making it to 90.

Average life expectancy for a male in the U.S. is 74.8. For everyone one of us that makes it to 90, one of us will only make it to 60. I wasn't trying to be exact. It just amazes me how much emphasis is placed on retirement in this day and age. I just have a different approach to life. Lost both my parents before I graduated high school probably has something to do with it.

 

[SDHNTR]

30-40% APY is vastly different than 30-40% off the top.

40% of $10K is a $4K cost to access $6k.

So $6K with a 5 year term at 22% interest would be the equivalent. 12% interest for a 10 year term. Or equivalent to 4% interest on a 30 year term (for example if it was used to pay down a mortgage).

Plus, there is security in having lower monthly expenses.

Not saying people should do it, but it is not as dumb as some make out.

Of course, if the market crashes, withdrawing now could lock in profits. If the market keeps going up, then obviously the losses are bigger over time.

You can lock in market gains without tax consequences. No one says you have to take a distribution.

True to form, there is soooo much bad advice on this forum. As per usual when it comes to financial topics here.

Some advice…. If anyone is uninformed enough that they are compelled to ask financial questions on this forum, do yourself a favor and don’t. Just don’t. Unless you possess a world class BS filter, you could wind up with some really bad advice. Consult a professional instead.

 

[Andrew12gauge]

You're the second person to rationalize a very stupid decision this way. You can roll a former employer 401k into your own ira or to your new employers 401k. Theres no taxes or penalties to do so.

Its not like this is a secret either.

You act like I didn’t reinvest, I tried rolling it over, I tried buying into mutual funds and ETF’s, their whole user interface was broken. This was the literal worst financial institution I have ever dealt with, if I could remember the name of it, I would share it so everyone knows to run far away. I took the money in late 2024 and immediately deposited it right into my brokerage account, I didn’t buy a boat or a new truck, I bought stocks that have performed quite admirably since then.


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[SDHNTR]

Average life expectancy for a male in the U.S. is 74.8. For everyone one of us that makes it to 90, one of us will only make it to 60. I wasn't trying to be exact. It just amazes me how much emphasis is placed on retirement in this day and age. I just have a different approach to life. Lost both my parents before I graduated high school probably has something to do with it.

I’m very sorry for your loss, but there is good reason why smart people are focused on retirement “in this day and age”. Defined benefit pension plans have disappeared in favor of defined contribution 401k plans. That was a very profound and meaningful shift that has taken place over the last 40 ish years. Now, one needs to be focused on retirement because no one else is!

The math is decidedly on individuals living longer. IMO, it’s not something to bet against.

 

[SDHNTR]

You act like I didn’t reinvest, I tried rolling it over, I tried buying into mutual funds and ETF’s, their whole user interface was broken. This was the literal worst financial institution I have ever dealt with, if I could remember the name of it, I would share it so everyone knows to run far away. I took the money in late 2024 and immediately deposited it right into my brokerage account, I didn’t buy a boat or a new truck, I bought stocks that have performed quite admirably since then.


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Did you ever try to call them? You had options. You could've rolled over into an IRA and bought those same stocks without the tax hit. You could’ve even taken the distribution and made a rollover deposit of those funds within 60 days.

Was your employer a small business? It’s very common for smaller business to use mom and pop third party administrators for cost reasons and because they don’t have access to large firms. That doesn’t necessarily mean the plan was bad or lacked good options. With today’s fiduciary requirements, 401ks are heavily regulated. Despite tech challenges it is pretty rare to see one that is outright bad. 401ks are also a giant pita to administer and manage. There is an economy of scale. Many smaller companies lack the resources to have robust tech platforms. Pretty common actually.

 

[Cowbell]

I’m very sorry for your loss, but there is good reason why smart people are focused on retirement “in this day and age”. Defined benefit pension plans have disappeared in favor of defined contribution 401k plans. That was a very profound and meaningful shift that has taken place over the last 40 ish years. Now, one needs to be focused on retirement because no one else is!

The math is decidedly on individuals living longer. IMO, it’s not something to bet against.

It's not about the finances. I have just seen firsthand where people are so focused on saving for retirement that they miss out on living in the present. I'm watching my FIL do it now. He could have cashed out a long time ago and be working for himself. Instead he's gonna be to old to go on the trips he dreams of when he calls it quits at his job.

 

[Traveler]

30-40% APY is vastly different than 30-40% off the top.

40% of $10K is a $4K cost to access $6k.

So $6K with a 5 year term at 22% interest would be the equivalent. 12% interest for a 10 year term. Or equivalent to 4% interest on a 30 year term (for example if it was used to pay down a mortgage).

Plus, there is security in having lower monthly expenses.

Not saying people should do it, but it is not as dumb as some make out.

Of course, if the market crashes, withdrawing now could lock in profits. If the market keeps going up, then obviously the losses are bigger over time.

Not sure I get what you are saying.

If you leave $10k in at 4% after 30 years, assuming $0 contributions/compound weekly you have $33,185.

Assume you have $200k mortgage with 4% interest, 30 years total cost principal+interest = $343,739.

Assume you use the $6k to pay down principal so $194k mortgage with 4% interest, 30 years total cost principal+interest = $333,426

Difference $10,313

So leaving your money in the $401k is $22,872 better.

 

[chuckD]

I took 50k out of my work sponsored 401k in 2014 for landscaping and improvements on a flip project. Profited well over 200 in 4 months with that money doing the work . Put it elsewhere after. Yes
I think what you have to remember, on a traditional, is you never paid the taxes to begin with, so after you get past the shock, it’s fine.

 

[Maverick1]

This is like the third or fourth thread this guy has started like this. Dudes just a troll and those are best left to starve.

Hmmm, interesting comment.

Looks like OP started this thread from 2024: Taking Equity out of Home to Go on Guided Hunts.

And this thread from 2023: Thoughts on Liquidating Retirement Accounts

So, this 2026 thread would be the third one he has started.

Are there more?

Why call him a troll? Perhaps he is just reaching out to get opinions and reviewing options to fund his hunting passion?

 

[Andrew12gauge]

Did you ever try to call them? You had options. You could've rolled over into an IRA and bought those same stocks without the tax hit. You could’ve even taken the distribution and made a rollover deposit of those funds within 60 days.

Was your employer a small business? It’s very common for smaller business to use mom and pop third party administrators for cost reasons and because they don’t have access to large firms. That doesn’t necessarily mean the plan was bad or lacked good options. With today’s fiduciary requirements, 401ks are heavily regulated. Despite tech challenges it is pretty rare to see one that is outright bad. 401ks are also a giant pita to administer and manage. There is an economy of scale. Many smaller companies lack the resources to have robust tech platforms. Pretty common actually.

Again, I paid no penalty to withdraw because we adopted a child the same year. The employer in question is a regional beverage vendor, I was fine with their administrator for the 401k, definitely not as good as say Fidelity for that purpose but it was fine as long as my money was there. When I left, the administrator moved my money to the other company, I tried calling, I tried using their clunky website, after several months of several thousand dollars sitting and doing nothing I said to myself I can take the tax hit this year(assuming I would have to pay a penalty) since we have the adoption tax credit to offset, withdrew the money since that was literally the first thing I had tried to do with that company’s website that actually worked and immediately poured it right into a brokerage account. I got lucky in that I didn’t realize I could withdraw all that money with no penalty because of the adoption that year and ended up with $0 penalty on the money. I don’t remember exactly what stocks I bought with that money but looking back since that time my overall portfolio is up about 40%. Was I foolish at the time, maybe, has it worked out, definitely.


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[PNWMLB]

I took out a giant heloc to go on some sheep hunts and I needed the funds so I cashed out my 401k

IDK…. Taking out of your retirement to go hunting is risky. It wouldn’t even cross my mind.

PNWMLB

 

[One300wsm]

I’m very sorry for your loss, but there is good reason why smart people are focused on retirement “in this day and age”. Defined benefit pension plans have disappeared in favor of defined contribution 401k plans. That was a very profound and meaningful shift that has taken place over the last 40 ish years. Now, one needs to be focused on retirement because no one else is!

The math is decidedly on individuals living longer. IMO, it’s not something to bet against.

Yep, my brother in law’s dad is 78 never did anything with his retirement money. Had to go in a nursing home 2 years ago. They took all his 401k retirement money and now they selling his house and belongings. Thats why you save for retirement so you can pay someone to wipe your . The problem this day and age people live to long. Big Phrama has so many drugs out to keep you alive. So the government can suck every last penny out of the poor soles to stupid/greedy to spend it or to stupid/greedy to have a trust set up.

 

[River1313]

As a financial planner, it’s fun to see these forums because all of you can be right. It all depends on your own personal goals and what you want your money to do for you.

The most important part is to know what you’re truly giving up/gaining when you make these decisions vs. just pulling the money out of various assets on the fly. We use tools and software that can show different options side by side to help you make the best decision. When looking for a professional, make sure they have the CFP designation.


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[TimberRunner]

Never done it.

Can't imagine I ever would.

I am generally opposed to giving the government 1/2 of a pile of money and lighting another 1/4 if it on fire.

But everyone's situation is different.