Has Anyone Cashed Out Their 401(k)?

[pods8 (Rugged Stitching)]

Steps we try to follow:

1. Contribute enough to your 401(k) to get the full company match.
2. Contribute to and max out an IRA.
3. Max out your 401(k).
4. After that, I'm not as knowledgeable, but I put extra money into a brokerage account. Others may choose to invest in individual stocks, buy CDs, or pursue other options.

Just for clarification for I believe you likely omitted from point 2, ROTH IRA, not a traditional IRA.

 

[dieselchessy]

My wife and I have talked several times about doing this to pay our house off. We go back and forth. If you look at the math, paying off your house early and investing tend to end with the same outcome it’s just what you prefer

Depending on what your mortgage rate is, and what your rate of return on your investments is you could be better off keeping the mortgage.

I think alot of folks would say to not pay off your mortgage ahead of schedule and to keep your savings working for you, and available to you, especially if its providing a good rate of return.


To answer the question, no Ive not cashed out a 401k. I max out my contribution.

 

[SDHNTR]

Just for clarification for I believe you likely omitted from point 2, ROTH IRA, not a traditional IRA.

If #1 happens, deductibility of the Ira contribution for #2 is a function of income.

 

[pods8 (Rugged Stitching)]

If #1 happens, deductibility of the Ira contribution for #2 is a function of income.

Thanks for the correction/clarification. I suppose if your 401k options aren't that good and your MAGI is low enough to deduct the traditional IRA contribution then that could be a strategy.

Usually when folks talk about that sequence of 1, 2, 3, 4 they probably have too much income so step 2 is typically a Roth IRA (and some folks shuffle 2 and 3).

I'm not telling you anything you personally don't know, mainly posting clarification for anyone reading that is learning.

 

[SDHNTR]

My wife and I have talked several times about doing this to pay our house off. We go back and forth. If you look at the math, paying off your house early and investing tend to end with the same outcome it’s just what you prefer

It would likely be pretty easy to prove the fallacy of that thinking, by a wide margin.