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Are you starting another job right away?
How old are you?
Well, with respect to the 165K in the retirement plan for the job you just left, since you are 55 & separated from service you should qualify for one of the exceptions to the 10% early withdrawal penalty. However, if you were to withdraw the funds necessary to payoff the 80K in debt, there won't be much left of the 165K.
What type of plan is the 165K?
One alternative to consider would be to roll the 165K into the new 401K and then take a loan from the new 401K to reduce the credit card debt to a more manageable level. That way, you would be paying yourself interest on the 401K loan at a lower interest rate (which would increase your 401K income), and at the same time not kill you on income taxes if you were to take a withdrawal from the 401K.
That also would leave you with your other 200K 401-K to use as a temporary reserve if your NH house doesn't sell.
Or you could take the loan from the 200K 401-k rather than the 165K after it is rolled to the new 401k at the new job.
Truthfully, if I were you, I'd sit down with a local CPA in NJ & sort this all out so he/she can work out your tax projections for 2015 & 2016 as that might make a difference as to the best course of action.
Yes, but that 20% is just the withholding, not the actual tax you would pay. You will owe more than that with your return.
Hang on a minute.
If you read what I suggested, I'm not talking just about paying off the loans & the 401K issue; with this much money at stake, you really need to work out a financial plan & tax projection; we can't do that in this Q/A format. That's all I meant.
You have to be careful re the withdrawals (verses a loan) as if you are a NJ resident when you make the withdrawal, you'll pay NJ taxes on the withdrawal also.
Keep in mind that 20% is not the actual tax you'll pay.
All you asked was whether or not it would be worthwhile to pay off the credit card debt & the auto loan & how to do so. I'm giving you the factors to consider.
The plan that I gave you as an alternative to CONSIDER would eliminate the 20% withholding as well as ANY tax on the loan & still reduce the CC debt as much as you want to do so.
Well, that's exactly what I'm telling you to make sure you understand what else will result from the withdrawal.
If you feel that you can't repay a 401k loan over a 5 year period, then that wouldn't be the way to go.
The advantage of the loan is that you pay yourself the interest which increases your return on the 401-K.
You haven't given me any figures to work with; for example the interest rates on the CC debt.
One thing that tends to happen to everyone is that once the CC debt is completely paid off, it tends to build up again over time. That's one reason why it seldom makes long-term since to use "long-term" assets, since as your retirement funds (which have build up over a lifetime of effort) to pay off your current living expenses absent a job loss, major medical bills, those type of things.
However, your piece of mind is most important & in this state of transition between homes & jobs, if paying off the CC debt completely rather than replacing it with a longer-term 401K loan makes you feel more secure in your current financial situation, then it makes sense to do so. I just hate to see you be subject to the income tax on the withdrawal at this stage of the game.
So, the bot***** *****ne is that presuming that the interest rate on the Credit Cards is (or will be) higher than your investment returns on the 401k; then it makes financial sense, particularly in your present circumstances, to withdraw the funds necessary to payoff at least the CC debt, although as I suggested I would also consider a loan against the 401K to pay off the CC debt as that would avoid or at least defer the income taxes on the funds necessary to pay off the CC debt. I wouldn't pay off the auto loan as the interest rate on that debt should be low.
If you have any follow-up questions or I can clarify anything I've said, please don't hesitate to ask.
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