On Saturday, August 6, 2005 at 7:04:27 PM UTC-7, pooky wrote:
> Hello,
> I am looking to correct the bad situation of being in debt, which would
> include gettting rid of mortgage debt. It seems that even if I
> eliminated the credit card debt that we have, that mortgage debt is
> just as bad and if I'm going to take the hit of a 401k distribution, I
> may as well knock down the mortgage as well.
> The situation is (approx numbers):
> - $140k bi-weekly mortgage with pmi @ 4.625% with a potential rise to
> 5.625% if I lose my employment. Last year, pmi cost me $1100. I do
> pay $100/mo additional principal.
> - $15k in cc debt (although only a 1/3 has an interest applied and the
> rest is on-schedule to be paid before the 0% intro runs out)
> - no "direct" car payment (car was paid off with a lower interest cc
> that is factored in the $15k cc line). We drive an 8yo and 7yo
> vehicles, each purchased as used and require minimal maintenance.
> - I pay approximately $297/mo in mortgage interest and pmi
> - I pay approximately $1500 to the cc bills which incurs $62/mo in
> interest ($360/mo total in interest to mortgage, pmi and cc's)
> - Last year, my taxable income was $34k, so the distribution would
> probably kick me into the next bracket, but I am unsure of how much
> that effect would be.
> - I am in my mid-30's
> The problem is that we are cash poor and $360/mo is a lot to be paying
> in interest, which is why we are looking to get out as quickly as
> possible. We are already bulk buying, buy on-sale online, visiting
> garage sales and do not eat out, etc. but without the ability to pay
> all of the bills with cash and live on cash, we recognize that we are
> fighting a losing battle.
> I have recently changed jobs and have approx. $66k in my former 401k
> plan. I am trying to figure out what my distribution would be
> after-tax, if I took it as a check and/or whether or not the hit would
> be worth it in the long run.
> As I read about the effect of compound interest and average rate of
> return on an investment, the "expected" calculation rate seems to be
> between 8-10%. However, with the major corporatation legal issues (who
> doens't have their executives on trial right now???), and other
> uncertainties in the market, I have a great deal of uneasiness with
> expecting that rate in the future.
> It seems that my investment options by rolling the 401k would be to
> hope for a 10% (let's use this for argument's sake) return over the
> next 30 years, minus taxes at withdrawal of around 15%, which would
> reduce my actual take to 8.5-9%. Or, I could invest in lower risk
> options other than equities and take a lower rate of return.
> Alternatively, I could take the $66k, minus the 10% penalty tax
> ($6,600) and what my regular estimated tax rate would be ~30%
> (estimated tax and would cost ~$19.8k), this would leave me approx.
> $39,600 (66-19.8-6.6 = $39,600).
> What would I do with that money?
> - pay off all cc and cut them up
> - Pay off enough of the mortgage to eliminate pmi (roughly $17k needed,
> although this may be less as our property has appreciated since it was
> bought)
> - any money leftover would go to: 2005 Roth, emergency fund
> The $4300/yr not tied up in interest and pmi, plus the $1500/month not
> going to cc principle (~1800/mo total) would go toward rebuilding
> retirement, a better budget, house repairs, child savings and paying
> off my mortgage early. I am also looking at low-startup cost
> businesses in addition to my salary. This, I believe, would give a
> guaranteed, tax-free 4.625% return on pre-paid mortgage dollars,
> eliminate the pmi and cc interest and significantly dent my overall
> mortgage interest without the risk of the investment options. I would
> also reduce the effect of the higher interest rate in the event that
> something did happen to my job. I would continue to contribute to my
> current company's 401k for the matched max, as I don't want to abandon
> that benefit. I have thought about stopping the current 401k and
> applying this money to the debt, but it is such a small amount that it
> doesn't seem logical when you factor in the tax deduction.
> The debt-free campaigns talk about eliminating your highest-interest
> debt and accelerating your payments as bills are paid off. By taking
> the distribution, I would essentially do that immediately, with all of
> my "free" cash going to pay off the house. While I know that I would
> be forfeiting something down the line, it seems that consolidation
> loans and other types of "tools" only seem to change the parameters,
> but not the debt. The risk of going back into cc debt is mitigated by
> having tried to cut back over the past 18 months. Yes, it is a bad
> situation, but mathematically, it seems that cutting my losses now
> seemed better than trying to pay things off over along period of time.
> Is there anything I have not factored into the equation of taking the
> distribution other than an estimated 30% tax and 10% penalty on the
> gross distribution (other penalties, etc.) ?
> Are there other tools should I consider (moving is not an option, as
> the lawyer fees, etc., would eat much more than the 10% tax penalty of
> the distribution)?
> Any other advice would be appreciated.
> Thank you.

https://news.yahoo.com/finance/news/lost-400k-retirement-savings-roth-174006044.html

On Wednesday, May 31, 2023 at 9:27:00 PM UTC-7, wrote:
> On Saturday, August 6, 2005 at 7:04:27 PM UTC-7, pooky wrote:
> > Hello,
> > I am looking to correct the bad situation of being in debt, which would
> > include gettting rid of mortgage debt. It seems that even if I
> > eliminated the credit card debt that we have, that mortgage debt is
> > just as bad and if I'm going to take the hit of a 401k distribution, I
> > may as well knock down the mortgage as well.
> > The situation is (approx numbers):
> > - $140k bi-weekly mortgage with pmi @ 4.625% with a potential rise to
> > 5.625% if I lose my employment. Last year, pmi cost me $1100. I do
> > pay $100/mo additional principal.
> > - $15k in cc debt (although only a 1/3 has an interest applied and the
> > rest is on-schedule to be paid before the 0% intro runs out)
> > - no "direct" car payment (car was paid off with a lower interest cc
> > that is factored in the $15k cc line). We drive an 8yo and 7yo
> > vehicles, each purchased as used and require minimal maintenance.
> > - I pay approximately $297/mo in mortgage interest and pmi
> > - I pay approximately $1500 to the cc bills which incurs $62/mo in
> > interest ($360/mo total in interest to mortgage, pmi and cc's)
> > - Last year, my taxable income was $34k, so the distribution would
> > probably kick me into the next bracket, but I am unsure of how much
> > that effect would be.
> > - I am in my mid-30's
> > The problem is that we are cash poor and $360/mo is a lot to be paying
> > in interest, which is why we are looking to get out as quickly as
> > possible. We are already bulk buying, buy on-sale online, visiting
> > garage sales and do not eat out, etc. but without the ability to pay
> > all of the bills with cash and live on cash, we recognize that we are
> > fighting a losing battle.
> > I have recently changed jobs and have approx. $66k in my former 401k
> > plan. I am trying to figure out what my distribution would be
> > after-tax, if I took it as a check and/or whether or not the hit would
> > be worth it in the long run.
> > As I read about the effect of compound interest and average rate of
> > return on an investment, the "expected" calculation rate seems to be
> > between 8-10%. However, with the major corporatation legal issues (who
> > doens't have their executives on trial right now???), and other
> > uncertainties in the market, I have a great deal of uneasiness with
> > expecting that rate in the future.
> > It seems that my investment options by rolling the 401k would be to
> > hope for a 10% (let's use this for argument's sake) return over the
> > next 30 years, minus taxes at withdrawal of around 15%, which would
> > reduce my actual take to 8.5-9%. Or, I could invest in lower risk
> > options other than equities and take a lower rate of return.
> > Alternatively, I could take the $66k, minus the 10% penalty tax
> > ($6,600) and what my regular estimated tax rate would be ~30%
> > (estimated tax and would cost ~$19.8k), this would leave me approx.
> > $39,600 (66-19.8-6.6 = $39,600).
> > What would I do with that money?
> > - pay off all cc and cut them up
> > - Pay off enough of the mortgage to eliminate pmi (roughly $17k needed,
> > although this may be less as our property has appreciated since it was
> > bought)
> > - any money leftover would go to: 2005 Roth, emergency fund
> > The $4300/yr not tied up in interest and pmi, plus the $1500/month not
> > going to cc principle (~1800/mo total) would go toward rebuilding
> > retirement, a better budget, house repairs, child savings and paying
> > off my mortgage early. I am also looking at low-startup cost
> > businesses in addition to my salary. This, I believe, would give a
> > guaranteed, tax-free 4.625% return on pre-paid mortgage dollars,
> > eliminate the pmi and cc interest and significantly dent my overall
> > mortgage interest without the risk of the investment options. I would
> > also reduce the effect of the higher interest rate in the event that
> > something did happen to my job. I would continue to contribute to my
> > current company's 401k for the matched max, as I don't want to abandon
> > that benefit. I have thought about stopping the current 401k and
> > applying this money to the debt, but it is such a small amount that it
> > doesn't seem logical when you factor in the tax deduction.
> > The debt-free campaigns talk about eliminating your highest-interest
> > debt and accelerating your payments as bills are paid off. By taking
> > the distribution, I would essentially do that immediately, with all of
> > my "free" cash going to pay off the house. While I know that I would
> > be forfeiting something down the line, it seems that consolidation
> > loans and other types of "tools" only seem to change the parameters,
> > but not the debt. The risk of going back into cc debt is mitigated by
> > having tried to cut back over the past 18 months. Yes, it is a bad
> > situation, but mathematically, it seems that cutting my losses now
> > seemed better than trying to pay things off over along period of time.
> > Is there anything I have not factored into the equation of taking the
> > distribution other than an estimated 30% tax and 10% penalty on the
> > gross distribution (other penalties, etc.) ?
> > Are there other tools should I consider (moving is not an option, as
> > the lawyer fees, etc., would eat much more than the 10% tax penalty of
> > the distribution)?
> > Any other advice would be appreciated.
> > Thank you.
> https://news.yahoo.com/finance/news/lost-400k-retirement-savings-roth-174006044.html

(2023 Youtube upload):

"RED FLAG: Americans Draining 401ks | Counter Points"