You will be hit with a 10% penalty and income taxes. You can deduct against income taxes by buying points and closing costs. You will lose 10% but employer match and the fact you will be taxed more than that in the future and fund managers take up to 2% a year, makes it not that big of a lost. The market hasn't really moved at all in the last 10 years and another dip would continue the cycle, especially with the recent predictions from OMB stating unemployment will be stagnant for 10 years http://www.politico.com/politico44/2012/07/omb-report-says-recession-will-cost-decade-of-high-130371.html . Rather than using 401k for retirement, another plan is to buy multiple properties, rent them out and pay them off by the time you retire. This is a good idea especially in our area where rents are high, jobs are good and people are flocking from the rest of the country to live here and need housing. Personally I have always advocated Real estate because it is like gold, a physical investment whereas stocks are theoretical. I want to be able to touch my investments.

Anonymous wrote:OP, this is a catastrophic idea. If you feel pinched now, consider never being able to retire.

+1.

MIL has lived beyond her means for a long time and has the credit card debt and lack of retirement savings to show for it. Now she is in her late 60s and being laid off. Social security is not enough to live on and she may have to declare bankruptcy. And we may end up supporting her.

OP, if you are making 300K a year and feeling this financially stressed, you are living beyond your means. Sell the house and rent or buy something cheaper.

Anonymous wrote:well sort of a bad idea. IF you were able to buy a house and pay the MAXIMUM amount of points against the 401k withdraw you could deduct away most of the penalty. Try to minimize the loss by finding a way to deduct against it that tax year.

FYI we are doing this and plan to liquidate current 401k that has remained stagnant for the last 12 years. Our new plan is to continue to buy rental homes and use future income of paid off homes for retirement.

Please don't take any financial advice from someone who has had a stagnant 401k for the last 12 years.

Real estate should NEVER be an investment. Just ask all those who were planning to sell and retire now -- and have lost 30%+ on their home values.

Are you totally insane? Mortgage rates are about 3.5%. Hell-o?

Anonymous wrote:bad idea right? we are seriously considering cashing out one of the 401Ks and paying off a second trust on our house, we then plan on saving payment each month to grow our cash reserves and just have some more security in that we won't lose our house if we lost a job or had to take significant paycuts. we will also be able to refinance and take advantage of the low rate. Here's how I see it:

Pros: pay off high interest 2nd trust
Refi 1st and lower payments by almost 2K a month
ability to be more flexible in job market (ie. no needing to make 300k a year)

Cons - obvious - taxes, penalties, losing future returns on investments.

anybody done this even though its against all conventional wisdom?

BAD idea! That is a seriously dangerous thing to do and tells me that if you are willing to cash out your retirement, you are way over extended
1) on paying off high interest 2nd - cant you refi that loan for a lower rate? also,that interest is a deduction.
2) on refi on the 1st - what is stopping you from doing this now? also depending on how much you have on that 2nd you might be able to roll the 2nd into the 1st.
3) ability to change jobs - this comment alone tells me you should probably just sell the house and downsize now. Even if you lose a little money, it pales in comparison to the damage you will do to your fincances if you cash out your 401k

As for borrowing against it? well, you hinted that you would like to change jobs which means you would need to repay that loan shortly after leaving that job.

Just don't do it! Sell the damn house and downsize.

Anonymous wrote:well sort of a bad idea. IF you were able to buy a house and pay the MAXIMUM amount of points against the 401k withdraw you could deduct away most of the penalty. Try to minimize the loss by finding a way to deduct against it that tax year.

FYI we are doing this and plan to liquidate current 401k that has remained stagnant for the last 12 years. Our new plan is to continue to buy rental homes and use future income of paid off homes for retirement.

You cannot deduct against a penalty. Please stop giving financial advice. You're going to cause someone serious pain.

OP, this is a catastrophic idea. If you feel pinched now, consider never being able to retire.

We took out a loan from our 401Ks for our down payment. 50% of available funds with no penalty and we are basically just paying ourselves back.

well sort of a bad idea. IF you were able to buy a house and pay the MAXIMUM amount of points against the 401k withdraw you could deduct away most of the penalty. Try to minimize the loss by finding a way to deduct against it that tax year.

FYI we are doing this and plan to liquidate current 401k that has remained stagnant for the last 12 years. Our new plan is to continue to buy rental homes and use future income of paid off homes for retirement.

We would pay the 10% penalty and then whatever income taxes are due when we file.

Do you get hit with a big fee for early withdrawal from your 401K?

Can't you "borrow" from your 401K, pay off the 2nd trust, and then repay the loan from the 401K with the savings from refinincing your mortgage at a lower rate?

Just admit that you're living beyond your means. Don't screw up your retirement to continue doing so

Seriously bad idea.

bad idea right? we are seriously considering cashing out one of the 401Ks and paying off a second trust on our house, we then plan on saving payment each month to grow our cash reserves and just have some more security in that we won't lose our house if we lost a job or had to take significant paycuts. we will also be able to refinance and take advantage of the low rate. Here's how I see it:

Pros: pay off high interest 2nd trust
Refi 1st and lower payments by almost 2K a month
ability to be more flexible in job market (ie. no needing to make 300k a year)

Cons - obvious - taxes, penalties, losing future returns on investments.

anybody done this even though its against all conventional wisdom?