Cashing out a portion of your 401K?

You can borrow from it without penalty if you pay it back. Adoption is one of the options for which you can borrow from your 401k. Your monthly payment can be an automatic deduction from your paycheck. All the interest you pay goes right back into your 401k account. Which is a big positive.

when you say cash out, are you talking about taking a loan or a withdrawal. usually, cashing out means permanently removing money from the plan. i administer 401k plans and see waaaaaaaaaaaay too many people take money out of their plan and regret it later. just remember, if you take a withdrawal out of your 401k plan, you will pay 20% taxes up front and then a possible 10% penalty at tax time. in addition, pay the difference in tazes between the 20% and what your actually tax rate is. the 10% penalty won't apply if you are over 59.5 year old or left the company at 55 or older. if you're talking about taking a loan, then you are repaying yourself with interest. it's better than paying someone else back with interest (like a bank); however, that money is still out of your plan not earning interest. now i know, not much interest these days with the stock market, but money is money. also, it's good to keep the money in the plan since investments aren't going well for everyone right now- why sell after you lost money? i am very passionate surrounding people taking money out of a retirement plan. it's for retirement! personally, i would only take a loan out if this is the absolute last resort. i like your idea of paying it back as soon as you get the money. also, be educated about the loan fees as well- some companies charge $200+ just to take the loan. also, remember, if you leave the company before the loan is repaid, you will either have to repay the loan in full within 90 days after you leave (some plans are sooner), or it will be viewed as a withdrawal and you'll have taxes consequences next year at tax time. i always hated when people would call up and say, "i'm taking a loan or withdrawal out of my plan to surprise my spouse with a cruise." nice surprise when the spouse figures how much money you lost because of this cruise. i know, a cruise isn't the same as adoption, but they both aren't retirement related. also, you usually don't need a reason to take a loan out of your plan- unless it's for a loan longer than 60 months- in those cases it's usually a primary residence loan (can take that for usually 120+ months). good luck with your decision.

This is how my husband and I funded our adoption. We took our money out on a loan, we did not cash out. We pay back monthly directly to our tax shelter. For adoption, we were able to withdraw the money and still earn on it!!!! We are very happy with our decision to do this to fund our adoption. Lesley

I cashed out a 401(k) a spart of my adoption process- I lost my job right befreo I entered PGN, so I cashed out a 401(k) to pay the fee to my agency and used my home equity line of credit to live on for the 3 months I was out of work. Not hte best choice, but the only choice I had at the time. My 401(k) was not with the company I lost my job with and the the plan administrator would not allow loans since it was an old 401(k) where I was no longer contributing. You can not repay the 401(k) with money that has been taxed (salary) if the plan was a pre-tax account. I will say that cashing out the 401(k) cost me dearly at tax time- I ended up paying taxes becuase Aidan did not come home that year-so no tax credit. It sucked to have to pay the taxes all becuase I lost my job and the adoption did not complete in that tax year. While I realize that I will never make back the interest and the money I spent by cashing out the 401(k), it was the only option I had at the time. I would talk with your plan administrator to see what they say about you options- they will be able to show you the risk/benefits of your choice.

I would wait to do until you are out of PGN. If there is any Federal tax owed then it would hopefully qualify for the Adoption credit.I took out of my Teacher's Retirement account and wished I would have waited until we brought him home. Our tax accountant said some of the penalty would have been forgiven. Dang.Just an FYI. -J

Thanks everybody! You guys are awesome. It looks like we are not able to "cash out" our 401K. We could borrow from it, use it as a loan. We don't know yet what we'll do but you guys are a HUGE help! Thanks so much. I welcome ANY other ideas! Tracy

We took a loan against it and we pay it back directly through my husband's paycheck. It worked for us and was our only option at the time.

We took out a small loan, less than $11k, to help pay for DS's adoption, and paid the minimum off till we get our tax refund from the feds for the adoption. We're going to pay the whole stinkin thing off with that!

That is exactly what we did to pay for the last portion of our adoption. We took out a $10000 loan and are paying it back via payroll deductions. NOw we ar epaying it off since we got our tax return back after using the adoption tax credit. I thought at least I am paying myslef back, so I thought it was a good option. Hope that helps.