Not sure how old you are but most people cannot make the full contribution until they’re older anyway. And most people that could contribute to the cap don’t.
But I laughed at you anyway, since you asked nicely.
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I still have no idea how to execute a backdoor Roth. My employer does allow taxable 401k contributions, I just have no idea how to actually execute the instant Roth conversion.
I believe your employer would also have to allow you to transfer out of the 401k or do in plan rollovers to a regular 401k, in which case you would transfer to an IRA and then execute the backdoor roth, or transfer to the in plan 401k.
Search “mega backdoor roth”.
Regular backdoor Roth is pretty easy but you might want to consult with a tax pro for the mega situation.
Congress just killed the Stretch IRA in a bill that is, predictably, basically written by the financial services industry (under the guise of helping retirees, 401k plans will offer annuities - average expense ratio 2.5%). My initial thought on ending stretch IRAs is that its good policy, but wildly unfair to people who did estate planning based on the old rules.
Hey all, creating a burner account here as the numbers are kind of sensitive, and hoping for some advice without doxxing my main account.
Mid to Late 30’s couple, 1 401K, about 160K available in it. Looking at around 65K in general debt (not counting student loans) and about to have a change in job status that will cut income of about 10K (net) in half. Total monthly payments on the debt is around 4K, and with the job status change I just don’t see how we can keep that up and still pay rent/mortgage, food, bills, etc (totals about 4K in monthly bills + food)
I know the general wisdom here is to never touch the 401K, but it seems like I have little available options. How bad is taking 100K out of the 401K to pay the debt if we can reasonably expect to start contributing the maximum amount in about a year?
Take a loan from 401k to avoid early WD penalty?
The job with the 401K is the one we will no longer have, so a loan wont be an option
In all honesty, the 10% penalty seems like a small price to pay for the piece of mind of not having the debt hanging over our heads anymore. We’ve carried it for something like 10+ years.
Have you considered bankruptcy? I believe your 401k will be protected
We have, getting a house in less than 7 years is really important too us though.
Well it’s 10% penalty plus normal taxes plus such a large distribution will likely end up resulting in paying some of the normal taxes in a higher tax bracket.
But if you’re going to do it, think and plan fast. You might want to do some portion in 2019 and another portion in 2020 in order to keep your total income lower in both years.
Thanks, we looked into this. Based on our current tax bracket, and the job downsizing in 2020, it seems like the best option is to take it all next year since we will be in a lower overall bracket then and we are in a higher one now.
We are just hoping the market holds for another ten days
If that’s the case, then really take your time here before making a decision.
Can you get a smaller apartment, make do with 1 car, live on beans and rice for a year or two in order to pay this debt down?
This is a good question. The house option probably wont be for another couple years, but having no debt heading into getting a house is a huge plus.
As for the numbers on the debt, if we continue to be in debt and pay off at our glacial pace (which will continue because of the job loss) we could expect to pay the equivalent of the 10K in penalty in interest in about 15 months while still not being out of the debt.
I guess what I really want to hear from someone is that taking this money out at this point in time, leaving 60K in the 401K and then starting to contribute heavily after a year isnt going to totally decimate our retirement.
My math says it will takes us about 4 years to recoup what we take out at the max contribution and about half that if we are both able to contribute the max. How much am I really losing to things like compound interest by doing so?
No, especially with the upcoming job loss. Even reducing rent by a thousand dollars (a VERY tough prospect where we live) and reducing food costs by 500 a month, we would not even be barely scraping by. Obviously the goal is to side hustle for as much money as possible during the downtime, but there is no guarantee on that.
You probably could even with bankruptcy. It takes seven years for the bankruptcy to disappear from your credit report but your credit score will significantly improve in a few years.
Another alternative would be to buy a house and then declare bankruptcy. Although that would be tough with your monthly debt payments. Could you break down your debt types, interest rates and other costs for us?
No, that’s horrible.
So is withdrawing 100k from the 401k. 4000 in monthly debt payment vs 5000 in income screams bankruptcy to me
I mean, I agree it isn’t good to buy a house and then declare bankruptcy. But it also isn’t good to dismiss bankruptcy because you want to buy a house soon. And you probably could buy a house reasonably soon after bankruptcy, three or four years. It is an option that merits a lot of consideration.