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Posted: 6/9/2002 12:28:55 PM EST
I've been out of work since February 2002 with no prospects on the horizon for work that will support the lifestyle to which I've become accustomed. My much-deflated 401(k) has a value of ~$10K and I drive a vehicle for which I pay around $400/month.

I plan to cash in and take the beating on my 401(k), buy a $2-3K used truck with cash and then sell my Durango and pay off the note. The remains of my 401(k) cash will go to future mortgage payments.

Any holes in this plan?
Link Posted: 6/9/2002 12:39:54 PM EST
Link Posted: 6/9/2002 12:40:39 PM EST
Link Posted: 6/9/2002 12:41:01 PM EST
Your beating on that 401k will be around 30-35% in taxes.  If all else fair try to avoid that.  At the same time I know that sometimes a man has to do what a man has to do, it sucks.  Also, gas is a budget killer, try to get a small car and save money there.

Link Posted: 6/9/2002 12:43:21 PM EST
Since you have some free time, now would be a good time to contact the VA about any nagging medical problems from your military service.
Link Posted: 6/9/2002 12:44:24 PM EST
I am really sorry about your situation... if I were in your shoes I wouldn't hesitate to cash out to make ends meet.

Heck, I just pulled out some cash from my 401k to get a new deep well dug!
Link Posted: 6/9/2002 12:44:48 PM EST
None right now really.  It's always better to not touch your savings, but it's your money in the first place and a roof over your head is a pretty important thing.

Getting rid of the car is an excellent idea.  Payments on a vehicle suck in the first place as the value keeps dropping each mile.  But that's the way it is for new cars.  Buying a used car will allow you to reduce your required income by $400/mo. and that's nothing to sneeze at.  

If you can't make enough money to live the life you're accustomed to, then the next best thing is to get reacustomed to a new lifestyle with less outflow of cash.  

Are you working now at a lower paying job, or still looking?  

Link Posted: 6/9/2002 12:44:51 PM EST
I'm in the high tech industry, and they tell me it's turning around. You should try to hang for just a little longer.
Link Posted: 6/9/2002 12:50:31 PM EST
I also would lay off my 401 as long as possible, and I always found high car payments a pain in the a**. New cars are overrated for me, as I drive about 5miles per day in mine. I love to tinker on cars, and my 85 chevy pickup is very slick, and very cheap!!!

Good luck in finding a job, prayers are with you.. fullclip
Link Posted: 6/9/2002 12:53:40 PM EST
Someone already mentioned tax's. What kind of work do you know? Are you at all portable? If you are a combat veteran, & need help with the VA, you may want to contact me (see my profile). If you have a CIB you may want to contact me anyhow....
Link Posted: 6/9/2002 12:54:14 PM EST
I'd seriously re-think getting out of the 401k- do the math on your age now vs. age to retirement.  Assuming even a moderate growth in the retirement account, it can get pretty substantial by the time you're ready to retire.  At 7%, the amount will double in 10 years, and keep on doing that.  $10k now will be worth $320k in 50 years, all other things being equal.

Perhaps a change to more conservative investments within the 401k would be advisable?

It's a lot harder to replace that amount as you get older.  Please seek the advice of someone who knows about these things, as you not only take a cash-out penalty hit, but a long term hit in replacing what you're getting rid of now for what are likely to be temporary circumstances.

If need be, sell the current truck, get a beater and eat mac 'n cheese/tuna/top ramen until things get better.  Or send the wife to work!  [;)]

Think about it...

(edited for typo...)
Link Posted: 6/9/2002 12:56:10 PM EST
Link Posted: 6/9/2002 12:57:17 PM EST
I took a beating on my taxes for 2001 because of an outstanding loan on my 401k (laid off last year). I didn't have to pay but my refund was greatly reduced. I had to take out another big chunk this year to refinance the house. If that's what you have to do to keep your house, then do it. At least you and I won't really feel the penalties until April next year.
Link Posted: 6/9/2002 2:39:46 PM EST
Okay, my 401(k) has [b]lost[/b] value, and I don't see the stock market shooting up to new heights anytime soon. I am much more concerned right now with staying current on my mortgage payments than with my retirement.

My wife is working at a great job in the healthcare field here in Dallas, so I don't know how realistic a move is right now.

Believe me, my lifestyle expectations are considerably diminished in the present conditions. No more lighting $50 cigars with $100 bills for me.
Link Posted: 6/9/2002 3:00:21 PM EST
Normally, I would say treat your 401k like it doesn't exist, but no one knows your finances better than you. Sometimes you have to bite the bullet. But can you promise yourself you will do whatever it takes, balance your budget, whatever, so you won't need to dip into the 401k again? This is something you don't want to make a habit of doing.
Link Posted: 6/9/2002 3:02:26 PM EST
You have an excellent plan, [b]Jarhead_22[/b]!

It's what I would do in the same circumstances.

Stop the hemorrhaging!

A paid for vehicle is the best kind, and don't forget that you only need liability and not collision insurance on it. But check with your agent, 'cause I found that collision on my '90 Jeep was only running me $16.00 a month, so I'm happily paying it!

Eric The(FiscallyPrudent)Hun[>]:)]
Link Posted: 6/9/2002 3:08:07 PM EST
I'm a firm beleiver we Americans spend TOO MUCH for our vehicles.

Personally, I drive a 88 Toyota pickup with 156K on it.

So from that aspect, your plan is good.

But, what if your $3K truck "blows up?"

My advice - get a used foreign truck (Toyota preferrably) They run forever. Get someone who REALLY knows how to inspect a used vehicle if you don't feel comfortable doing it yourself.

Good luck.

Link Posted: 6/9/2002 3:15:49 PM EST
Normally, I would say treat your 401k like it doesn't exist, but no one knows your finances better than you. Sometimes you have to bite the bullet. But can you promise yourself you will do whatever it takes, balance your budget, whatever, so you won't need to dip into the 401k again? This is something you don't want to make a habit of doing.
View Quote

It's not like I'm paying off the bookies because I bet heavily on the Tyson fight or something.

[b]I lost my job, but the mortgage company still wants their check every month.[/b]

I'm not going to "dip into" my 401(k) to indulge some whim and get that Porsche I've been jonesing for all these years. I'm going to crack it to pay off my truck once I sell it, then spend the rest on mortgage payments. This is a measure of last resort; I thought I was clear on that.
Link Posted: 6/9/2002 3:34:19 PM EST
Jarhead_22, dude, relax. I'm agreeing with you boy! I'm not criticizing you at all.

All I'm saying is you need to try, very hard, not to have to do this again. You can start by keeping 6-9 months worth of expenses in something like very short-term bonds or a money market account and use that as your emergency fund, as opposed to having to hit the 401k.

I know many, many guys who bought homes before the crash, lost their jobs for 6 months or more, and then had to dip into their retirement. Had they saved enough to live during that period, they would not need to dip. You want to avoid losing 30-40 years worth of gains.

Anyway, you're doing what you need to do, and no one can criticize you for that. I've been out of work since July 2001, so I feel for you.
Link Posted: 6/9/2002 3:40:44 PM EST
Post from garandman -
Personally, I drive a 88 Toyota pickup with 156K on it.
View Quote

In a perverse 'one upmanship' in reverse, I drive either my 1990 Jeep Cherokee (175,000 miles) or my 1992 Jeep Sport (316,000 miles)!

How you like [u]them[/u] apples? [:D]

Miz Hun drives the luxury stuff, but she's damn well worth it!

Besides, she won't go near the Jeeps!

Eric The(Lord,ILoveThatWomanSo!)Hun[>]:)]
Link Posted: 6/9/2002 3:47:09 PM EST
Link Posted: 6/9/2002 4:06:52 PM EST
[b]I lost my job, but the mortgage company still wants their check every month.[/b]

I'm going to crack it to pay off my truck once I sell it, then spend the rest on mortgage payments. This is a measure of last resort; I thought I was clear on that.
View Quote

Have you considered selling the house and either renting or moving in with family?  That's what I'm getting ready for.
Link Posted: 6/9/2002 4:07:21 PM EST
Well buddy, you gotta do what you gotta do. 401K is the way to go when you look at the priority of things. When I was unemployed, I raided my IRA. since I am a bit of a job hopper, my 401K would've only bought me airfare back to CA. However if you do get a job within 60days, make sure you open an IRA Rollover and payback as much of the 401K as you can within that 60 window to escape taxes. My advise also is if you can get temp jobs or maybe freelance till you get something steady.
Link Posted: 6/9/2002 4:10:03 PM EST
BTW.what is a 401(k)? I've seen it mentioned here quite a bit.
View Quote

401K is a company sponsored tax deferred retirement plan. They got the name cause it is stated in section 401-K of the Internal revenue code. It has to meet certain requirements and restriction to make it "qualified" for tax deferral under the internal revenue code. Most companies will match your contribution to the plan.
Link Posted: 6/9/2002 4:11:01 PM EST
Jarhead, Didn't you say you were from Pa.? Think about relocating back East. NJ was just voted the "richest" state. Lots of jobs around here and all are paying very well. Just a thought.
Link Posted: 6/9/2002 4:13:25 PM EST
Link Posted: 6/9/2002 4:17:43 PM EST
Don't dip into your 401K. If you take it out it will take you that much longer to bring it back up. Go get a job at Home Depot if you have to man, that 401k is for your retirement.
Link Posted: 6/9/2002 4:29:37 PM EST
Jarhead, getting rid of the Durango is definitely a good idea.  I don't know what the rest of your finance's look like, but if you have to draw from your 401k, then that's what you gotta do.  You're a pretty young dude (I think), so you can build it back up.  I'd do the same thing.  I hope things work out for you.  Good luck brother.
Link Posted: 6/9/2002 4:32:30 PM EST

I know what you are going through right now for I am in the same boat with you. Got laid off last February and my wife too is in the healthcare.

We have a good size home and a new truck that we are paying for and two kids. I know how tough it is but I would implore you that if there are other ways, do not touch you 401K. Once taxes and penalties are taken out of the 10K that you mentioned, I do not think that you will be able to payoff your Durango.

I know, I do have one thing going for me and that is, I always paid off whatever the bottomline of my credit cards were so I do not have any balance that I am paying interest on. With this, whatever change I do with my lifestyle, I can immediately reap the benefits.

With this said, I strongly suggest finding ways to dilligently save where you think you can't. Some of the things that I have done are:

- don't eat out. Cook your own meals and make the best of cheap meat and vegetables. You would not believe that I can make a $2.00 meal that can feed 4 people.

- do away with trips to the mall. Whether you are going to buy something or not, avoid places where you will be tempted to spend money. Stay at home and watch TV or keep us company here in the boards.

- If you want to watch a movie with the family, patronize $1.00 movies and no snacks. Best time to watch a movie at $1.00 theaters is during "Early Bird Special". It usually is right after lunch time so you are still full from lunch and it is cheaper (where I am, it is only $.50)

- turn the thermostat in the house 2 degrees higher. According to some of the utility stats, each degree is usually around $20 off your bill.

- if you have another vehicle that has a smaller engine, use it instead of the Durango. We personally do not use the truck except for Sunday service or when using our 4-cyl. Mercury Tracer is not practical. Buy gas from Sam's Club. They usually are $.05 cheaper than the cheapest gas station.

These are just a few, you can email me and I can suggest some other stuff where you can save up.

Link Posted: 6/9/2002 6:15:36 PM EST
Getting rid of the 400.00 + ins + gas a month in transportation sounds smart. Damn.....a pal in AZ. pays 500.00 a month for 2acres + a domehome,including water in a area bordering a National park.[;)]Course he's still got his first .10cents he ever made too._____people in this country spend to much and buy to much CRAP!......sounds like there a lot of good suggestions on this board already.
Link Posted: 6/9/2002 6:31:25 PM EST
Jarhead and LT, have either one of you considered security?  It may not be your idea of a fine job, but there is usually overtime available, and paychecks will roll in.
View Quote

I've been mulling over the idea of a second job. Security work may be the way to go. Got any leads or info on how to go about getting into it. Looking for just weekend stuff. Maybe Fri. Sat. nights.
Link Posted: 6/9/2002 6:43:46 PM EST
You might want to rollover your 401k into an IRA.  

100% of the vested portion of the 401k will go into the IRA with no immediate tax liability.  You could then take money out of the IRA and put off any income taxes until next April.

You'll get hit with early withdrawl fees but they'll be nowhere near the 35%-40% tax withholding if you just liquidate your 401k.

You may want to talk to a bankruptcy attorney.  Chapter 7 bankruptcy can (and most likely WILL) enable you to erase any credit card debts (and other unsecured debts) without affecting your car loans, mortgages, etc.

Link Posted: 6/9/2002 6:43:48 PM EST
Link Posted: 6/9/2002 6:53:23 PM EST
JarHead, I have been in the same boat you are in. Luckily have since gained employment.

I had to do exactly what you are describing. The Tax man WILL take a bite out of YOUR ASS.
If you do decide to take out your 401k be SURE to hide back about 30% - 35% to pay your taxes with.

I too live in North Texas.  If you have to sell your new vehicle, be careful buying a used one. As of May 2002, certain North Texas counties are required to pass A NEW EMISSIONS TEST. (Dallas, Denton, Tarrant, etc....) I have an older ford pickup, she will have to retire to the Deer lease or uuhhhmmm...be Sold to a friend in a neighboring, less restrictive county so it can be inspected. Diesels and Motorcycles are exempted, to the best of my knowledge.

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