Questions & Help with "Cashing in a 401K"

[GrizzlyAdams]

Quote:

Actually the bank would love for you to let the house go back to them since you have 60k in equity. They wouldnt mind it one bit because unlike most times they would actually make money off the deal.

This is not totally true. Once the proerty goes into foreclosure, depending on the area, the value will go down considerably. Foreclosures will sell for considerably less than market value as the bank will want this to sell as quick as possible. Also potential buyers will not pay top dollar for a house that is lender owned due to not knowing if there is any problems with the house. Also vacant homes are harder to stage for sale because buyers don't get to see what the place will look like when it is furnished. I am an appraiser and deal a lot with foreclosed homes. You would be amazed to see how some people leave their homes. Not only that but with the high inventory of foreclosed homes these lenders own it is impossible for them to get into them right away and winterize them and freeze damage is quite common making the home even less valuable. Then mold sets in and it becomes impossible to sell. I am not saying at all that this will happen to your home but it happens regularly. In other words the bank does not want your house back as they will lose money. They need to hire people to mow lawns, pay the taxes, pay the utility bills, hire some one to list it and show it, plus the lawyer fees and administrative fees. Definately give Fisherdog a call and see what he can do for you. With a credit score that high I guarantee you should be able to find a lender to help you out in some way or another.

One suggestion I could give you is to consider renting out a room or 2 to help give you some extra income. Being that you are single I would think you would have additional space to do so. I know it may not be great sharing your home with strangers but if it will save your home and credit score then I would seriously consider that route as well. A lot of very good tips have been mentioned and the sooner you can get things figured out the less stress you will have and the easier things will be in the long run. Good luck with what ever you decide and hope it works out well for you. I will keep you in my prayers. Grizzly

[BobT]

Quote:

This is not totally true. Once the proerty goes into foreclosure, depending on the area, the value will go down considerably. Foreclosures will sell for considerably less than market value as the bank will want this to sell as quick as possible. Also potential buyers will not pay top dollar for a house that is lender owned due to not knowing if there is any problems with the house. Also vacant homes are harder to stage for sale because buyers don't get to see what the place will look like when it is furnished. I am an appraiser and deal a lot with foreclosed homes. You would be amazed to see how some people leave their homes. Not only that but with the high inventory of foreclosed homes these lenders own it is impossible for them to get into them right away and winterize them and freeze damage is quite common making the home even less valuable. Then mold sets in and it becomes impossible to sell. I am not saying at all that this will happen to your home but it happens regularly. In other words the bank does not want your house back as they will lose money. They need to hire people to mow lawns, pay the taxes, pay the utility bills, hire some one to list it and show it, plus the lawyer fees and administrative fees.

Which is precisely my point. With all due respect to fisherdog, I believe EVERYTHING is negotiable under the right circumstances. That doesn’t mean your situation is but I’d hate to see you give up without at least trying.

[wmn luv me walleye fearme]

while everything probably should be negotiable with your lender it is not. Like you mentioned it doesnt hurt to try but I talk to people everyday and there is nothing we can do. A lender doesnt back the loan. It is backed by Fannie mae/freddie mac. The lender is the servicing provider. In order to do a traditional refinance the loan must meet fannie mae/freddie mac guidelines. In order for it to be able to go through the hope for homeowners program it has to again meet certain criteria related to employment, dti, house value etc. In fact we do a lot of loans that meet all the criteria for hope for homeowners and its still denied with no explanation. (try explaining that to a customer who is barely hanging on, that is not a fun call to make) Yes once you get behind they will work with you a little to defer some payments but it is only a temporary solution usually done through a lenders loss mitigation department. If it was that easy to work things out with a lender we wouldnt have nearly the amount of foreclosures we have in the market. Everything is regulated and everything has to meet certain guidelines logical or not.

If you make an offer on a foreclosed home logically you would think the response should be quick as the bank is desperate to sell it. While that makes sense it doesnt work that way and it may be 3 weeks until you hear back from the bank on an offer because it has to go through all the channels.

Again wish you luck, its a crappy situation. Not that it would make you feel better but at least your still doing better then a lot of people that i talk to that are 30k in negative equity and have 30k in debt. The roomate thing sounds like a great idea. Who knows maybe you get a hot chick to move in and she has her friends over on a regular basis who like to party.

take it easy

[GrizzlyAdams]

Fully agree. Loans are really hard to get right now. However with a credit score of over 800 more possibilites exist. Try a local smaller bank maybe. Gotta try. If you do consider renting out your home there are options there also. You can place an ad or talk with a management company. Management companies will do it for a fee but they handle finding renters and collecting rent so you don't have to worry about it. Plus they have more experience on legal matters that may arise if any. Any local realtor should be able to direct you to a management company if you choose that route. Again good luck.

[gurkster]

Single guy with a house. Have you thought of getting a roommate? Might give you just a little more cash until you sell the house and boat....

[Iron Cowboy]

I dont want to be too negative but look at the big picture. I would cash out and not give up my place.

Your retirement money doesnt guarantee you anything...especially in todays world economics. And I have had relatives that saved all theyre lives for a big nest egg, then they got sick and couldnt take care of themselves,insurance is maxed out and then guess what? The government draws out that money some at a time to pay for theyre care until its completely gone.. then the system takes care of the cost, just like they would have from the beginning if you didnt have anything to start with. Not saying its a good thing to not take care of your future but you can work hard all your life and if you get sick you are going to be totally broke and depending on others anyhow.

nobody knows what lies ahead. I would keep my place and take care of today, you got to have somewhere to live and eat every day. the way the world is going who the helll

can even try to tell you that money in the market will even be there in a year let alone 20.

[fisherdog19]

The retirment money can be put in a very safe investment such as cash, money market, bonds, and still have the same or greater value in the future. I would exhaust all other options before cashing out the 401K. Another option would be cashing out the investment portion of a Roth IRA if you have one. You can take out what you put in, without penalty but you cannot put it back. If you take any of the growth you will be penalized.

[Down Deep]

I would go out find some work to do. There is a ton of "Handy Andy" work out there. I'm in my late 50's set financially and still working full-time, but have worked part-time during the late fall, winter and early spring for the last 10 years driving a bus for a senior citizen housing development. I spend anywhere from 10 to 15 hours a week and earn almost $15.00 an hour. This job pays for my fishing trip travel. With the profile you listed you only need about $600 to $800 cash per month to get even. That's very achievable even in the sucky economy. The roommate idea is also a good one. $400 a month would get you 1/2 way there.

If you cash the 401K that's an interest rate of 40% plus any gain you may get on the money. You also have to add any depreciation you already took on the money in the last two years and any gain in the years to come. Remember the market has gained 30% in the last 9 months.

Also, don't take any advice that advocates foreclosure. This economy will improve. I've been through three downturns and lost my job twice and ultimately did very well. You will be very sorry 5 years from now when you try reestablish your credit and want to buy another house, car or boat. You have a credit rateing of 800+, so you usually make good decisions about money, but looking at your profile I think you play a little loose with your spending. So tighten the belt, get creative and you will do fine in the long run.

[SkunkedAgain]

The whole time I was thinking that you were with wife and kids. Single and with a boat makes things easier...not happy...just easier. Here are some of the options:

1) The roommate option is beautiful. Find one. Ask around. Make it happen.

2) Sell the boat at a discount. Don't worry about what you "should" be getting. Get what you can. The hit you take on selling the boat for less is better than the 401k hit and it gives you cushion cash.

3) Put the house on the market. Calculate the cost/hit that you're going to take by doing a 401k withdraw and contrast that with the hit that you'll take on discounting your house. Sell the house for $210k (or something below market value), get an apartment or better yet live in a buddy's basement until you get the job you want. Now you've got a little money from the equity of the home sale as well. Buy another house.

There's a reason that everyone is telling you not to touch the 401k unless absolutely necessary...many people have made that mistake before.

Good luck buddy. This economy sucks.

[Iron Cowboy]

There's a reason that everyone is telling you not to touch the 401k unless absolutely necessary...many people have made that mistake before.

Good luck buddy. This economy sucks.

Yeah, because they are saying everything they here the "market people say" ...and who are the market people? the people that want your money to stay in the market or they loose theyr'e money. All in all it always comes down to money and "how do I keep mine" no matter how they try to sugar coat it......I would love to hear from some OLDER 60+ people that have cashed out before the time was due and regret it?

[BobT]

Originally Posted By: SkunkedAgain*

There's a reason that everyone is telling you not to touch the 401k unless absolutely necessary...many people have made that mistake before.

Good luck buddy. This economy sucks.

Yeah, because they are saying everything they here the "market people say" ...and who are the market people? the people that want your money to stay in the market or they loose theyr'e money. All in all it always comes down to money and "how do I keep mine" no matter how they try to sugar coat it......I would love to hear from some OLDER 60+ people that have cashed out before the time was due and regret it?

I know that I can find plenty of OLDER 60+ people that regret not putting some effort into a retirement account. They still have their health, well most of it, but are now barely getting by on social security alone. The life expectancy is getting higher but that doesn't mean our bodies are keeping up. Anyone that lives long enough faces the inevitable reality that there's a good chance that we will no longer be able to compete in the employment world against younger people. With the current economic condition I became painfully aware of this even now at the age of 50. The thought of being laid off and having to complete with a 30-year old for a job is not a pleasant one.

Why do you think the social security program was started in the first place? It was to help reduce the number of elderly living in poverty. Granted, SS doesn't prevent it but it's a whole lot better than not having it. Personally, I will do what I can to NOT become a burden for my children because I was lazy and negligent by not at least trying to put together some form of retirement package.

There are no guarantees. I may not live long enough to use even one dime of that package but if I don't I can live today with the knowledge and pleasure of knowing that I might leave behind a nice gift for my children. If I become sick and end up spending the money on medical treatment, so be it. That's my responsibility too.

[nofishfisherman]

I don't think this conversation is as simple as should I or shouldn't I.

For a single guy with no kids and a house there are a few more options that can be explored before pulling out the 401k.

A few of them have been mentioned like finding a roommate or selling the house. But selling the house requires you to have a certain amount of equity in the house. If you owe $200,000 on the house but can only sell it for $175,000 then selling won't do it for you. But if you have equity then I'd look long and hard at selling or maybe renting it and moving into a cheaper apartment.

You could also sell the boat, toys are a luxury that won't pay the bills and will only likely drain your wallet quicker.

Personally all of these things should be considered before cashing in the 401k. YOu might find that you'll need to sell the boat now and also put the house on the market. Live off the boat money until the house sells.

If you are young you can cash in the 401k and still recover from it but you'll take such a huge hit on it that almost any financial adviser will tell you not to and not becuase they'll lose out on that money, they'll tell you because its the truth.

No one here knows all the circumstances here, if you are upside down on all your loans (house, boat, car, etc) then options start getting slim. Just make sure to exhaust all other options first before deciding to let Uncle Sam get his hands on your 401k.

[Day Dreamer]

I am not a financial planner or tax consultant.

Have you thought about taking a loan against your 401k? Meaning most plans allow a person to take a loan against their 401k without penalties as long as payments are madee. Loans are easier to get vs cashing out funds which generally requires a hardship.(house is in foreclosure) Generally, the loan is paid back by bi--mothly payroll deductions. You wil have a payment, but it may help with cash flow. For example consoldatiing credit card debit spread over a 5 year loan.

The loan would have to be paid back orwoudl be considered as cash out if you were terminated from your employer.

[shizzy]

I am not a financial planner or tax consultant.

Have you thought about taking a loan against your 401k? Meaning most plans allow a person to take a loan against their 401k without penalties as long as payments are madee. Loans are easier to get vs cashing out funds which generally requires a hardship.(house is in foreclosure) Generally, the loan is paid back by bi--mothly payroll deductions. You wil have a payment, but it may help with cash flow. For example consoldatiing credit card debit spread over a 5 year loan.

The loan would have to be paid back orwoudl be considered as cash out if you were terminated from your employer.

most times yo umust be employed and contributing in order to take a loan out on your 401K. by the sounds of it, neither is happening right now for him.

[SkunkedAgain]

A 401k loan can be similar to just pulling the money out. If you quit your job then you immediately take the hit on the outstanding balance. It's a risky proposition.

[shizzy]

A 401k loan can be similar to just pulling the money out. If you quit your job then you immediately take the hit on the outstanding balance. It's a risky proposition.

I looked in to that a few years back. and yes, if you quit or got fired the balance owed was due within a certain number of days.

[SkunkedAgain]

It happened to me. I took out a loan to pay down credit card debt since the rate was lower. It was a decent idea until I changed jobs. I ended up taking the 401k hit. It really knocked down my 401k balance (still hasn't recovered) and then I paid a whole lot more in taxes. In the end I realized that it was not a smart move, despite my best intentions.