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.

 

[B Harrison]

I’m 45, and I can’t imagine any reason to cash out anything I have for a hunting trip.
The penalty’s are terrible, and my child may need money later in life, so I’m just going to keep fighting for $100 here and there while my retirement grows.

I may regret that, but I would definitely regret not having it


Sent from my iPhone using Tapatalk

 

[jlaner0408]

My goodness this thread is entertaining

 

[gbflyer]

My FIL did. Burned through it in a couple years. He was just about to the point to have to go get a job at Walmart then he passed somewhat unexpectedly. Lucky bastard.

 

[Salmon River Solutions]

In one year I managed to...

2020

-take out a home equity loan, buy some equipment to start SRS.
-get divorced
-lose house in divorce
-Get Covid, quit my day job while I was on Covid leave and run SRS full time
-liquidate 401k to pay off any personal debt and buy a commuter car

Worked out I guess... And I'm getting remarried in 3 days.

Ken

 

[Customweld]

In one year I managed to...

2020

-take out a home equity loan, buy some equipment to start SRS.
-get divorced
-lose house in divorce
-Get Covid, quit my day job while I was on Covid leave and run SRS full time
-liquidate 401k to pay off any personal debt and buy a commuter car

Worked out I guess... And I'm getting remarried in 3 days.

Ken

You had some dizzying highs and terrifying lows in 2020!

 

[S.Clancy]

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.

Do folks really think of think of this as binary? I guess at some point I think of it as a means of "diversifying" how I save $$$. If I am putting 20-25% into investments and have a 5% mortgage, it makes sense to me to start paying down the house if I can maintain the investment %. I understand the math, but paying the house is a guaranteed 5% return, everyone has recency bias on the market, like it only goes up.

 

[TN2shot07]

Do folks really think of think of this as binary? I guess at some point I think of it as a means of "diversifying" how I save $$$. If I am putting 20-25% into investments and have a 5% mortgage, it makes sense to me to start paying down the house if I can maintain the investment %. I understand the math, but paying the house is a guaranteed 5% return, everyone has recency bias on the market, like it only goes up.

That’s the point I got to as well, we’ll have the house done in a couple of years and have been investing the whole time. Way easier to do investment math when you remove the risk of the market going the other direction…

 

[LostArra]

I’m not watching that whole thing, but suffice it to say that those blindly throwing money at index funds without knowing what those funds own, or how concentrated they are, is a huge mistake. Diversification matters.

I agree with your point regarding diversification and knowing your index but there are plenty of much worse options that folks blindly throw money at.

 

[CorbLand]

Do folks really think of think of this as binary? I guess at some point I think of it as a means of "diversifying" how I save $$$. If I am putting 20-25% into investments and have a 5% mortgage, it makes sense to me to start paying down the house if I can maintain the investment %. I understand the math, but paying the house is a guaranteed 5% return, everyone has recency bias on the market, like it only goes up.

In my opinion it is binary.

The math either works that you make more money one way or the other.

Then there is the emotional side of what fits your life, goals, risk appetite, etc.

But over arching all of that is “what are my goals?” Either it works to further my goals or it doesn’t. So, it’s binary to me. There are just nonbinary elements of a binary decision.

 

[30338]

I had variable income my whole life. I invested the max in 401, saved money in brokerage account in stocks and mutual funds. Paid off house early and never borrowed from 401. It's a great feeling when your income goes down to have the mortgage paid off. It's even better when your income goes way up and your mortgage is paid off.