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Dumbest financial decision I ever made was taking out a cheap home equity loan to pay off credit cards. This would even be worse.

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I'm curious, if you don't mind me asking, why you didn't like this coarse of action. I mean it would seem that trading a high interest non tax deductible loan for a lower interest, possibly tax deductible, loan would be better.

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I agree, but I think he/she is saying that until you correct the spending problem, you are destroying yourself. Pull from your house to payoff cards and then run up the cards again may mean that you now lose your house (if continued).

If you are disciplined (which most people with large debt are not), taking the HELOC to pay off credit cards is wise. I just don't meet many that should because they spend too much and will only reload them up.

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Completely agree. I actually don't agree with Dave Ramsey on a lot of what he says...but for a large portion of his audience what he is saying is probably a much better path. He says to pay off the lowest balance debt first then roll that payment. Technically you should pay the highest interest down first...but I get that the emotional side is a factor. Feeling a win so to speak of getting a payment off your books is nice.

I hope they are not spending money on a fancy wedding.

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I hope they are not spending money on a fancy wedding.

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almost a guarantee

beautiful timing - markets were up nicely in 2013, but are pretty much flat since then

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beautiful timing - markets were up nicely in 2013, but are pretty much flat since then

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yeah blind squiral and an acron ...lol

So after reading this thread, I guess I'm an idiot. We were unexpectedly hit with a large property tax payment due to buying a new house last year and the escrow being fubar'd. I had an old 401k that I never rolled over from the first job that was much less than my current 401k balance.

We just cashed it out to cover the tax and two other small debts with the plan being to use the amount we were paying monthly to pay down what remains of our student loans.

We considered taking a 401k loan instead, but being in O&G it would have left us exposed to pay it back in full if I was laid off. Taking out a regular loan wouldn't have helped much because the rate wouldn't have been lower than the existing debt and it wouldn't have lessened our monthly payments.

We are aware of the tax implications, but if appeared to have been the best option.

Do you think the marriage will last?

If there isn't a high degree of certainty, I'd suggest they pull HIS money out of the 401K and pay down some of HER debt. That way if things go sour in a couple of years, she will have less debt and be less likely to be living with you.

(I have no clue if this is how it would work legally)

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So after reading this thread, I guess I'm an idiot. We were unexpectedly hit with a large property tax payment due to buying a new house last year and the escrow being fubar'd. I had an old 401k that I never rolled over from the first job that was much less than my current 401k balance.

We just cashed it out to cover the tax and two other small debts with the plan being to use the amount we were paying monthly to pay down what remains of our student loans.

We considered taking a 401k loan instead, but being in O&G it would have left us exposed to pay it back in full if I was laid off. Taking out a regular loan wouldn't have helped much because the rate wouldn't have been lower than the existing debt and it wouldn't have lessened our monthly payments.

We are aware of the tax implications, but if appeared to have been the best option.

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My understanding is that if you default on the 401K loan, you just count it as taxable income. Of course, that leads to issues when April rolls around, but I figured taxes would not be my primary concern if I lost my job.

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My understanding is that if you default on the 401K loan, you just count it as taxable income. Of course, that leads to issues when April rolls around, but I figured taxes would not be my primary concern if I lost my job.

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My understanding is the same - if you get laid off, and have to pay back the loan and fail to do so, it's basically like cashing out your 401k in terms of the tax consequences. But I'm not sure if 401k loan provisions vary between different plans with respect to employment termination rules or if that is entirely dictated by law.

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Maybe I'm confused or he was...isn't it treated like income and thereby adjusting your AGI? He might have had other tax situations that made him pay rather than receive a refund that I didn't ask about.

Maybe it was the additional 5% needed to satisfy the tax on just the $38K, that caused him to owe money (single filer). In the OP's case, the guy would be short another 5% in taxes on $120K (as a married/jointly filer) if it's separate like I think you are alluding to.

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If he owed money it was because he miscalculated what he should have taken out.

If you're going to get a $2,000 on a $90K salary and you do a 401K withdraw, it doesn't change the math on your taxes with regard to the $90K. If you, however, don't take out the appropriate amount, given your other forms of income (in the case of my example, your $90K) and your deductions, etc. then you may end up taking out far too little on the $38K, in which case it will come due at tax time.

But again, that has everything to do with withholding too little and nothing to do with it impacting his normal refund. It's just the fact that somebody taking cashing out $20K while making $35K will be taxed against it differently than somebody taking out $20K while making $150K.

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It might push you to a level where some of the tax deductions phase out.

For example, If the guy had a kid and got the child tax credit, but then the 401k withdrawal pushed him up to where he lost the tax credit, it would actually cost him more than the marginal rate on the 401k money.

Also, if the 401k didn't withhold enough for his tax bracket, then he could face a pretty substantial bill in April.

Cashing out a 401k isn't just about the taxes and penalty. It's about an investment that you're wiping out and unplugging from future growth. It's a huge mistake.

As DR says, time to roll up your sleeves and pay off the debt. I highly doubt their projection of 5 years is taking into account a very tight budget. The journey of paying it off will hopefully make a bigger and lasting difference in overall habits that will allow these situations to be avoided.

Shortcuts in life rarely lead to positive outcomes long term.

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Maybe I'm confused or he was...isn't it treated like income and thereby adjusting your AGI? He might have had other tax situations that made him pay rather than receive a refund that I didn't ask about.

Maybe it was the additional 5% needed to satisfy the tax on just the $38K, that caused him to owe money (single filer). In the OP's case, the guy would be short another 5% in taxes on $120K (as a married/jointly filer) if it's separate like I think you are alluding to.

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If he owed money it was because he miscalculated what he should have taken out.

If you're going to get a $2,000 on a $90K salary and you do a 401K withdraw, it doesn't change the math on your taxes with regard to the $90K. If you, however, don't take out the appropriate amount, given your other forms of income (in the case of my example, your $90K) and your deductions, etc. then you may end up taking out far too little on the $38K, in which case it will come due at tax time.

But again, that has everything to do with withholding too little and nothing to do with it impacting his normal refund. It's just the fact that somebody taking cashing out $20K while making $35K will be taxed against it differently than somebody taking out $20K while making $150K.

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It might push you to a level where some of the tax deductions phase out.

For example, If the guy had a kid and got the child tax credit, but then the 401k withdrawal pushed him up to where he lost the tax credit, it would actually cost him more than the marginal rate on the 401k money.

Also, if the 401k didn't withhold enough for his tax bracket, then he could face a pretty substantial bill in April.

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Good point on phasing out deductions.

Also agree with the second part, but that was what I was trying to say as well - that would result in a substantial bill, but it wouldn't be the 401K impacting his other income - it would be the fact that the 401K distribution didn't withhold the proper amount.

I'm sure OP is really working hard and giving sound advice but first and foremost... Stop the damn wedding.

No way in hell these two should be getting married right now. Pay down 75% or more of your own debut and if still dating, talk about the wedding plans.

if there are issues (whether they are emotional, financial, whatever) that exist while dating, marriage makes them easier to deal with. Having children will make the issues go away completely. Best of luck to the new couple.

She should find an engineer to marry for 5 years and pay off her debt. He should marry some hot young waitress with no debt for 5 years to have some fun and slowly pay off that CC debt. Both should get divorced after that and marry each other in like 6 years. Way better financial decision even with the hot waitress taking half of that 401k. Do the math.

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She should find an engineer to marry for 5 years and pay off her debt. He should marry some hot young waitress with no debt for 5 years to have some fun and slowly pay off that CC debt. Both should get divorced after that and marry each other in like 6 years. Way better financial decision even with the hot waitress taking half of that 401k. Do the math.

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Unless the waitress manages to get pregnant a few times.

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if there are issues (whether they are emotional, financial, whatever) that exist while dating, marriage makes them easier to deal with. Having children will make the issues go away completely. Best of luck to the new couple.

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This is my favorite texags post in a while.