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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75637  
Subject: Re: Company SOLD!! - My 401K !!? Date: 4/3/2007 6:58 PM
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I'm going to have to join the chorus of 'no's that you were expecting. Think about the costs for a minute. The 20% withholding is merely a downpayment. I don't know your federal tax bracket, but lets say 25% (and this doesn't push you higher, which it very well may). Add the 10% penalty. Plus any state taxes or penalty you may pay (say, 5%). So you're looking at distinctly possible 40% haircut right off the bat.

Think about that. That means if you take $10K out, you're left with $6K, and $4K is gone forever - PLUS all the earnings on it for many years.

To put it another way, to pay off $6K of debt, you lose on on $4K of money. That's equivalent to 67% interest. And that's not even counting the lost interest.

If you really are paying down debt well and committed to it, as you imply, then your interest rates are probably getting lower and lower, and before too long, with balance transfers, may be very very minimal or none. I highly doubt it makes any financial sense to pay 67% interest to uncle same in lieu of paying much less to a bank.

While you've clearly made good strides on your debt I'm afraid you're still a bit too interested in what feels good *now*, versus what is wise financially (assuming your consumer debt was from purchases). Clearly you've made great strides in what it is that feels good - i.e. paying down debt vs. buying things - is it still striving for instant gratification in lieu of what is really wise.

A 401K loan is still a bad idea, though not quite as bad. But I would urge you against that too. A 401k loan is an expensive way to borrow money (hint: the real cost of a 401k loan has *nothing* to do with the interest rate).
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