401k withdrawals

Discussion in 'UPS Discussions' started by info needed, Mar 11, 2008.

  1. info needed

    info needed New Member

    I've been a driver in N.J. for over 20 years contributing pre-tax dollars to the 401k diligently. Are there any circumstances under which I can withdraw any of my balance before I turn 50 or leave the company. I know there may be penalties but I just need to know if it's possible.
  2. toonertoo

    toonertoo Most Awesome Dog Staff Member

    Hi and welcome to brown cafe.!!
    You can do hardship withdrawals for preventing foreclosure, unpaid medical, repairs to your home from catastrophic damages, such as hurricane and flood, and funeral expenses.
    You can do loans for college, purchase of home, adoption.
    Get an id with www.upsers.com, and you can do further research there.
    Once again, welcome to our community!!
  3. info needed

    info needed New Member

    Thank you so much; I can't believe the quick useful response. If you qualify for hardship withdrawals do you still have to pay the penalties? What if the debt you need to pay off is high interest credit cards and the payments that are starting to affect my ability to pay my mortgage? I don't want to wait until actual foreclosure.
  4. scratch

    scratch Least Best Moderator Staff Member

    info needed,
    Maybe you should get an equity line of credit on your mortgage to pay off the credit cards. Lower your payments, get a tax deduction, and save your 401K. Just a thought
  5. info needed

    info needed New Member

    Scratch, Good advice but total debt vs. equity in home is too high and banks won't lend more. If I can stomach the penalties, can't I access some of those 401k funds without actual foreclosure underway?
  6. toonertoo

    toonertoo Most Awesome Dog Staff Member

    No unfortunately you can only access it for the amount of foreclosure, not for credit card debt. And only for the amount to prevent it. I unfortunately had to take out some for medical, but glad I had the option. On a withdrawal ( hardship) you have the choice of paying the tax now, I believe it was 10% or paying it next yr. You do not pay back a hardship. To buy a house, college etc, it is taken as a loan. And you pay yourself back. I think the rate is like 9% right now. Private message me if you need any thing further. Good luck, its tough out there.

    FAVREFAN Member

    I believe payback is 1% above prime. Prime is 6% right now. Hey info needed......why don't you chop up those credit cards right now after you log out of the BC.
  8. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    Try calling your credit card companies to see if they will work with you by lowering your interest rates. When you call, don't stop with the first person you speak to, ask for someone who can help you lower your interest rate. Your success in getting the rates lowered will of course depend upon your personal credit history. 401k withdrawals should be your last option as the penalty (10%) and taxes (20%) will greatly reduce your net withdrawal amount. Loans differ in that they incur no penalty but are situation specific, that is they can only be taken out for certain situations which tooner outlined above.
  9. mountaingoat

    mountaingoat New Member

    In financial counseling, there are two types of people that come to me in debt. THe first says that he's thinking about getting out of debt but can't give up certain things like cable TV (what will I do if I cut out all my other expenses). The second type is ready to sell his organs and children to get out of debt. Believe me, the second one is serious about it.

    If you're thinking about stomaching the penalties, you're probably serious because the penalties and loss of time in the 401K will utterly cripple your retirement. Let me explain. First, you'll get a huge whammy from the Federal Government for withdrawaling the money before you said that you planned to. AND, you'll get taxed on that money. So, if you take out $50,000, you're paying taxes on the withdrawal PLUS a 10% penalty on top of that. Ouch.

    Now, I applaud the fact that you're seeking to rid yourself of consumer debt. People have already posted some good advice about contacting credit card companies to lower interest rates. That's a good idea. Here are some others:
    1. Get a second job, or have others in your house contribute to the household income. If your kids are working and they are not contributing to the household income and using your resources, they need to contribute. It's a family affair.
    2. Reduce your expenditures to the bare bone. What is a NEED vs. a desire. Is the NFL cable channel package a NEED? If you don't know what you're spending money on, beginning writing it down and keeping track of it.
    3. Contact the CC companies and explain your plan to them. As long as you're calling them and working through a plan with them, they won't be calling you.
  10. gone 401k

    gone 401k Guest

    Do you think it was a bad idea to liquidate my 401 k to play the last mega millions lottery. i bought just over 14000 in tickets and won 250 not bad huhhhh.......
  11. Don't ever take a withdrawal or a loan from your 401k.

    You WILL come to regret it.

    There are lots of sites out there to illustrate this point. See link below

    Follow the advice of some of the other wise posters here and find another option. Bottomline, this is the worst choice you could make.

  12. info needed

    info needed New Member

    Upstate, I'm getting some mixed messages here(not on Whether or Not to withdraw) but on the possibility of being able to. You seem to imply that a withdrawal(with taxes and penalties) can be done(albeit questionable); while Tooner stated that it had to qualify for Hardship(loan or withdrawal) and that credit card debt does not qualify. Do you have a different understanding of the rules than Tooner?
    Last edited: Mar 12, 2008

    FAVREFAN Member

    You won't pay penalties if you are approved for the hardship withdrawal. You will have to pay it back at 1% above prime to your own account. If you are not approved you can withdraw the entire account if you want but you'll be paying a 10% penalty and regular taxes on the full amount. Let me be blunt, you're a fool if you withdraw without hardship approval and even with approval your making a mistake. I hate to be so honest with you but people shouldn't even invest in a 401(k) if you end up living unresponsibly and need to use it like a piggy bank. It's a long term investment vehicle. You just wasted 20 years of investing. You'll never, never be able to make up for it if you go through with this. If it is that bad, look into filing bk and try to keep your retirement in tact.
    It's one thing if you get hurt or lose your job but this kind of thing is........well, let me stop.
    In closing, take other posters advise......find an alternative.
  14. You CAN'T make a withdrawal until you are at least 59 1/2, unless it's after-tax contributions. Most people only make pre-tax contributions.

    If you sever your employment, the possibility exists for you to take the money, but it would cost you half in taxes and penalties. Most people roll the dough over into a self-directed IRA until they're 59 1/2.

    You CAN take a hardship loan under a very short list of acceptable reasons and pay youself back at an interest rate of around 8%.

    Hardship Withdrawals
    While you are an active employee of UPS, you may make withdrawals from your Plan account for specific financial hardships prior to age 59 1/2:
    • purchase of a primary residence;
    • post-secondary education expenses for you or a dependent;
    • to prevent eviction from or foreclosure on your primary residence;
    • payment of unreimbursed medical expenses for you or a dependent;
    • payment for burial or funeral expenses for your deceased parent, spouse, children or other dependents; or
    • expenses for the repair of the damage to your principal residence that would qualify for the casualty deduction for federal income tax purposes.
    But again, as I stated before, you really don't want to do this. A loan from your 401 should be viewed as a last resort, after all other options are exhausted.......and even then, I still wouldn't do it. A really bad idea. Read the article in the link on my previos post, insight will be gained.

    All the info you need is on the UPS Teamsters website......just type in the word "hardship" in the search window and you will find all your answers related links

    Good luck
  15. info needed

    info needed New Member

    Favrefan, Thanks for the advice, I do appreciate your time. I'm still gathering facts. But as you see from CanYouComeBack's subsequent post, I'm still getting some confusion from this thread: Is CanYouComeBack correct when he says "you can only withdraw AFTER-Tax contributions before 59 1/2" unless its hardship.
    I can only apologize in advance for wasting your time with this persistent questioning regarding my foolhardy finances.
  16. HazMatMan

    HazMatMan New Member

    I don't think you can withdraw 401k for that. Sounds like you have a bad spending habit. And yes I am guilty of the same. lol.
  17. Directly from the 401k website titled......


    The government encourages you to save in a retirement savings plan by giving you a big tax break. To protect that tax break, they make it tough to withdraw your money before retirement. But in certain special cases, you may be able to withdraw money from your retirement savings plan account before you reach age 59 1/2.

    Withdrawing before-tax money
    Before-tax contributions give you such great tax advantages, you simply cannot withdraw this money without getting hit with taxes and a penalty equal to 10% of the withdrawal amount. Even then, you're allowed to withdraw before-tax money only for certain IRS-defined financial hardships, and only after you've exhausted all other sources of money such as savings accounts and bank loans. These financial hardships may include:*
    • Medical expenses
    • Buying your principal residence
    • Tuition and certain educational fees
    • Payments to prevent foreclosure on or eviction from your principal residence
    Withdrawals from the Plan may be subject to 20% federal tax withholding. However hardship withdrawals are not subject to the mandatory 20% withholding.

    * Refer to your summary plan description for your plan's hardship withdrawal rules.

    Withdrawing after-tax money
    Generally, you can withdraw after-tax contributions any time you want because you've already paid taxes on the money. However, you may be required to withdraw a portion of the earnings on those contributions. The earnings portion will be treated just like a before-tax withdrawal (if you're under age 59 1/2), which means it may be subject to early withdrawal penalties in addition to taxes.

    Go to the website and get official info and understand that forums are fraught with many different peoples understanding of what is!

    I know most mean well, but it's uncanny how many are so wrong on any given subject.

    Like others have said, change your consumption habits, call credit card companies and get them to reduce interest rates, many will if you have a decent track record. Consolidate, borrow from friend and family, sell something, reduce your 401k contrbution percentage, use a HELOC, etc........just pretend that 401k does not exist or you will be kicking yourself down the road. Trust me.
  18. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    Info, I am sorry if my post wasn't very clear. I was trying to say that withdrawals are possible but only under the situations which Tooner was kind enough to list for us. Basically, you have to be in serious trouble before you even want to consider a hardship withdrawal.

    Another poster stated that you should never borrow money from your 401k. I have to disagree but with a disclaimer. Yes, borrowing money from your 401k will reduce the amount that is available to gain interest, which is called compounding and which is the basic principle by which retirement savings such as the 401k work to the investors' advantage. However, smart use of the loan process can be to your advantage. For example, I took out 8 loans over the course of 4 years (2 loans/year timed so that one loan would be paid off when it came time to pay for the next semester and the next for the following semester and so on) while my 2 kids were in college. My daughter graduated this past December and my last 401k loan was paid off this past summer so now I am ramping up my contributions to get my balance back where it should be in preparation for my last 11 years. Taking out loans and using the entire 5 years that you are allowed to pay back the loan will only serve to lessen the amount of interest that you could have earned if you had not borrowed the money

    Work with your creditors. Search for any and all alternatives other than touching your 401k. Your retirement years will thank you for not touching your 401k now.
  19. toonertoo

    toonertoo Most Awesome Dog Staff Member

    I agree it is a bad Idea, but for 23 yrs, first the thrift plan, and then the 401 k I never thought of touching it.
    But I am glad it was there for my hardship. While I could pay on bills every day for the rest of my life for a catastrophic surgery, this will lessen my stress, and in 6 months I can start contributing again. And all my bills will be paid, for the medical part of my expenses. We have great insurance but with cancer or some ongoing illness, I cant even imagine what is left to be paid by a person. This was just, well not just, but coronary bypass.
    Ours was about 7 grand, not huge but owed to about 20 different surgeons, labs, hospitals radiologist, etc. You get the picture. And it was a one time deal, not a whole lot of expense afterward that we cannot keep up with. But for me to write out 20 checks a month for 20 bucks, for ever, would be more stress than I can deal with. Im lucky and glad I had saved so I do not have this problem to face. And we can get on with our lives and not have this burden on us. So for me it was the correct thing to do. Not for everyone, but for us it was.
  20. brownmonster

    brownmonster Man of Great Wisdom

    I don't understand how people making full time driver pay for 20 years+ can't come up with a few grand other ways than tapping retirement money. I suppose the money doesn't go as far in Ohio or Jersey but there is a reason for salting a little away in a rainy day fund. It rains now and then. Maybe everyone doesn't want to live in a shoe box and drive old cars like I do. Alot less pressure though.