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As many of you know, I got laid off from my job yesterday. I have paid just shy of 1 year on my '07 Prius and have a balance of just a few dollars over $24K. I'm thinking of taking enough money out of my wife's 401K to pay off the car. I know that there are going to be penalties and such but my thinking is this: At a payment of $550/month it won't take long at all to run into trouble making payments if I don't get back to work in a hurry. Since this is basically our only vehicle at the time, if it got repo'd, we would be in a heap of trouble and would not have a way for her to get to work or me by the time I got a new job. What I'm thinking is that it may be preferable(if that's possible) to pay penalties/taxes than to risk losing our only transportation to work. What does anyone else think?

Hi Larry:

___Because of your capabilities, I doubt you will be out of work long. With that, if you really need to pull cash from a 401K for month to month expenses, why not just pull a month to month stipend to pay the bills that are needed to be paid. Once cash is pulled from a 401k, it can never go back in which in many cases is worse than the interest on the vehicle and penalties although those penalties are going to hurt too :(

___Good Luck

___Wayne

I'd agree with Wayne. Only pull it out monthly as needed, and even avoid that at all costs.

Sorry to hear about the job.

You may look into taking a loan from your 401k to prevent early withdrawal penalties...but like everyone else said, it's not a good idea if you have other options.

If I were in your situation I would probably go the 401k loan route, and only for enough to stay current on payments until you get employed again. And even then, only as a last resort. Paying the car off from the 401k is definitely a bad move IMO.

Larry:
Use a withdrawal as a last resort. As a next to the last, but still a far better option, borrow from it. You can probably borrow against it for a low interest rate and the interest that is paid will be paid to your account. With the market drops though, you will be pulling capital out of funds that are probably at a low. You won't have those shares building back. With a loan, there are not any capital gains. If you do a withdrawal, you will need to withdraw about $36000 to net around $24,000. The feds want a cut of 28 to 30% off the top.

A relative became disabled last year (quadriplegic) and wanted to withdraw $160,000 to buy a house for he and his elderly mom. He had to withdraw $212,000 to net $165,000. He just had his federal return completed a couple of weeks ago and had to pay the IRS an additional $19,000. All that he had for income was a small federal disability retirement income.

You have a few days. Explore all your options and "Pray"!

My advice is to quickly get in the job market and get another job. If you can't find a job in a few months than you can think about that option. Make finding a job a thing you spend 10 hours a day on. Get that resume top notch and I doubt you'll have much problem. Think about how many jobs you can apply for if you spend 50 hours a week on it.

Figure out how long you can survive while making the payments. Also this is a great time to learn to conserve (even more). Learn to eat cheap, turn the lights off, AC down, etc. This can also be a time to turn to family members for a small loan if you really need it.

Sorry to hear about the job Larry.... Perhaps you can offer Prius driving lessons in the meantime?

http://www.freemoneyfinance.com/2006/02/the_12_biggest_.html This website has a lot of good information that might help out. Sorry to hear about it.

Hey Larry, I have been there, laid off and not knowing what to do next. But push push push for a new job and it has no choice but to happen. I know you are thinking of solutions, and you will find them. It will happen when you push hard and make it happen.
I did and it worked. It will for you too. Good luck and make your luck.

larry, i asked my financial advisor the same question when i got divorced and wondered what was the best way to cut down my expenses. she agreed pretty much with what wayne said. take out what you need on a monthly basis, until you get a job. then you will still have money in there earning interest, and if you really really need it later. it made sense to me, so that's what i did, putting my proceeds from the house into a retirement fund with some in a slush fund so to speak, and drawing it out only if i need it. kind of gives you a better option.

hopefully, you will end up employed again quickly.

laurie

Check out Dave Ramsey's web site for budget calculators. DO NOT pull money out of your 401K. You would be better off borrowing money. I however would find another job ASAP even if that meant delivering pizza 70 hours a week in your Prius.

It's that or find a way to cut your budget to the bone. No cable, eating out, etc...

I have (soon) 4 kids and one small income. I know how to budget. ;)

I really don't see any negative in this. One bad thing could lead to something good. You just got an opportunity to find a better job. That's my view on it.