Employer retirement plan withdrawal restrictions

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Topic Author
CoastPlateau
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Joined: Wed Apr 14, 2021 7:28 pm

Employer retirement plan withdrawal restrictions

Post by CoastPlateau »

Hello,

I'm in a pretty big personal finance mess of my own doing. Not sure if the details matter for this first post, but I probably should've filed for bankruptcy before things got this far. I've had to withdraw/take loans from my 401K, but that is almost all run out.

I also have another account that is sort of like a pension - an employer retirement plan where they put in a percentage of my salary each pay period. However, I can't withdraw or take loans from this plan while employed with the organization. It makes sense - not only to save me from myself, but also as a disincentive from having people pick up and leave if they have an employer-funded nest egg growing.

At this point, though, I don't have the the luxury of waiting much longer. I have thought I could resign in order to use some of the money in order to resolve some of my worst finance issues (rent, taxes, trying to improve my credit score). But I also don't know if I leave too abruptly or on the wrong terms if the employer can revoke the money in this plan. I know from experience that these withdrawals have their own tax implications, and of course leaving can have reputation implications, but I literally have zero dollars in my bank account and sub-600 credit and need to keep a roof over my head as a first priority.

Am I being paranoid that my boss, or someone else, may have the ability to prevent me from cashing out this account if I leave?

Thanks for any help, including questions for more details or possibly advice about what else I could do that I am not thinking about due to my panic.
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cheese_breath
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Re: Employer retirement plan withdrawal restrictions

Post by cheese_breath »

CoastPlateau wrote: Wed Apr 14, 2021 8:00 pm .... I probably should've filed for bankruptcy before things got this far....
You're considering leaving your job (only source of current income?) so you can raid your pension (only source of retirement income?) Do I have this tight?

If you should have filed for bankruptcy before, why aren't you considering it now?
The surest way to know the future is when it becomes the past.
ut2sua
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Joined: Tue Apr 21, 2020 9:19 pm

Re: Employer retirement plan withdrawal restrictions

Post by ut2sua »

OP, most folks will need more details info in order to provide any meaningful advices.
Without any numbers such as your current salary, how much is in the account, how long you have worked in the current company as well as vesting schedule for your retirement account. On the surface, it looks like you are in a panic, and your decision sounds rush and not financially sound.
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cheese_breath
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Re: Employer retirement plan withdrawal restrictions

Post by cheese_breath »

ut2sua wrote: Wed Apr 14, 2021 11:41 pm OP, most folks will need more details info in order to provide any meaningful advices.
Without any numbers such as your current salary, how much is in the account, how long you have worked in the current company as well as vesting schedule for your retirement account....
As well as some indications of your indebtedness.
The surest way to know the future is when it becomes the past.
Topic Author
CoastPlateau
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Re: Employer retirement plan withdrawal restrictions

Post by CoastPlateau »

Thanks for your responses. Yes, I am in a panic, so I am definitely not thinking in sound financial terms.

The employer plan that I mentioned originally has about $275,000 in it.

In terms of debt, the most immediate is 7 months of back rent (~$16,000) and eviction once the local eviction moratorium expires.
My other debt is around $150,000 of combined personal debt (credit cards, loans) that defaulted or got canceled as it became harder and harder for me to make payments.
And $15,000 remaining on a tax payment plan I need to keep paying because of previous withdrawals from my other employment plan.
This all started when I squandered a good deal of my divorce settlement through post-divorce dating/socializing but also in valid spending like maintaining a second bedroom for my child and paying back child support, and splitting their school tuition and trips as well.
My net pay has been stuck for years at around $5,500 per month due to salary freezes (or 1% raises) for one reason or another. I've known this trajectory is not sustainable but have stuck my head in the sand at each stage from a kind of financial paralysis each time I see the numbers don't add up.

Another obvious idea is I should apply for and find another job rather than just quitting. But I am getting nervous about my rent debt and don't know how long it would take to get a new job. Although I did apply for a job a few months ago and got to the second interview. Then I panicked about this "loyalty" culture thing that I described earlier. Like, whom could I trust for references at my current job if I am worried that they will ruin my reputation for being a "traitor" and leaving? Intellectually I realize that is just my own fear and probably self-defeating impulses of punishing myself for getting into this mess in the first place - by thinking irrationally and not taking a chance to fix it by pulling out of that job interview process.

I suppose I should also read the employer plan as was advised, even if quitting my job and trying to cash out the plan is in fact the worst possible option to pick.

Sorry again for the panicked posts but I hope I have provided a little more usable information for you to consider.

Thanks,
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8foot7
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Re: Employer retirement plan withdrawal restrictions

Post by 8foot7 »

You should consider debt settlement. With your situation, five figures in back rent and 150 large in unsecured debt, as well as a tax installment plan that's about to break, you should be able to negotiate 25 to 40 cents on the dollar. The problem is, you will generally need to come up with that 25 to 40 cents within 6-12 months. Would something like that be doable within your budget?

HOWEVER

Is your back rent with an individual landlord or a large chain?

Work through your issues in this order: food, clothing, shelter, transportation.
Do you have enough for your family to eat?
Are they clothed for the season -- as in, does everyone have shoes without holes and somethign to cover their body? If not thift it up.
Then you have to knock out your rent. Work with your landlord -- share the whole situation with them including your debt. You need to show that you will get back on track with your rent AND you need to show them that if they evict you, they will join a long line of existing creditors in collecting back rent.
Then make sure you can get to and from work. Do you need a beater car? Can you walk? Is all of that in a decent spot?[/list]

Your rent problem is a five alarm fire now. If you are facing eviction, get it right. Let everyone else, including IRS, stew. Get your rent handled. If your landlord won't budge, then tell them you're sorry you couldn't work it out and then move in somewhere else -- you can find a cheaper deal with a place for your daughter, BEFORE there is an eviction on your record. There are individual landlords ready to take you in, especially if you pay cash and a couple of months in advance.
student
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Re: Employer retirement plan withdrawal restrictions

Post by student »

For debt issues, you may want to post in https://creditboards.com/forums/index.php
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JoeRetire
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Re: Employer retirement plan withdrawal restrictions

Post by JoeRetire »

CoastPlateau wrote: Wed Apr 14, 2021 8:00 pm At this point, though, I don't have the the luxury of waiting much longer. I have thought I could resign in order to use some of the money in order to resolve some of my worst finance issues (rent, taxes, trying to improve my credit score).
Terrible idea.
But I also don't know if I leave too abruptly or on the wrong terms if the employer can revoke the money in this plan.
Seems unlikely. Read the plan documents.
I know from experience that these withdrawals have their own tax implications, and of course leaving can have reputation implications, but I literally have zero dollars in my bank account and sub-600 credit and need to keep a roof over my head as a first priority.
I hope you will at least find a new job before leaving this one.
Am I being paranoid that my boss, or someone else, may have the ability to prevent me from cashing out this account if I leave?
Yes.

Either the plan allows cashing out after separation, or it doesn't. Your boss or someone else will not be able to change that.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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JoeRetire
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Re: Employer retirement plan withdrawal restrictions

Post by JoeRetire »

CoastPlateau wrote: Mon May 03, 2021 3:17 pmAnother obvious idea is I should apply for and find another job rather than just quitting.
Finding some way to get more income (such as through a second job) makes a lot more sense than anything else you are considering.
Nights and weekends contain hours that could be tapped for income.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
260chrisb
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Re: Employer retirement plan withdrawal restrictions

Post by 260chrisb »

JoeRetire wrote: Mon May 03, 2021 4:05 pm
CoastPlateau wrote: Mon May 03, 2021 3:17 pmAnother obvious idea is I should apply for and find another job rather than just quitting.
Finding some way to get more income (such as through a second job) makes a lot more sense than anything else you are considering.
Nights and weekends contain hours that could be tapped for income.
Welcome to the forum. Sorry you're facing such challenges. I agree with this advice and under NO circumstances would I leave a job simply to get at money set aside in a pension. You should start looking for a new job that pays better tomorrow since you're at the top with your current job, find some form of side income as soon as possible, not worry in the least about your credit score, and try to work and negotiate your way out of some of your issues. Your habits have to change or you will always be looking to cash out retirement plans etc. The other issue are the loans that you've taken from your 401k if you leave the company. Short of you paying them back which you can't do, they become a taxable event.
water2357
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Re: Employer retirement plan withdrawal restrictions

Post by water2357 »

Your retirement accounts are largely protected from bankruptcy. You should not cash them out since creditors in a bankruptcy can't generally get this money while it is in the retirement plan account. Also, credit card debt that hasn't had anything paid on it can just sit there. Don't make anymore payments or you start the clock again on this type of unsecured debt. You need professional help in solving these issues. Don't quit your job, that will just make things worse. Look for some pro bono assistance in consolidating your debt that will have to be paid or dealt with in bankruptcy and filing for bankruptcy. You need to determine which of your debts can be left unpaid, and which you will need to deal with now, before you go off and pay more money when you don't even know if you have to legally pay it now.

And do whatever you can right now, today, to cut your expenses/spending.
exodusNH
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Re: Employer retirement plan withdrawal restrictions

Post by exodusNH »

CoastPlateau wrote: Wed Apr 14, 2021 8:00 pm Hello,
Am I being paranoid that my boss, or someone else, may have the ability to prevent me from cashing out this account if I leave?
I'm sorry you've found yourself in such straits.

Please be aware that if you leave your employer, your 401K loans will become immediately due. This is true even if you left your current company to go to a new one. (There's a chance that you could roll over the loan to your new employer, but both your old AND new employer need to agree to it. My SO ran into this when she left one job with an open balance. Fortunately, both companies agreed to it, which is apparently somewhat unusual.)

If you cannot repay the loan, it will be assessed as income with an additional early withdrawal penalty if you're not 59.5.
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Nate79
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Re: Employer retirement plan withdrawal restrictions

Post by Nate79 »

You need Dave Ramsey, bad. First fix your budget including hard cuts that are going to hurt - and that includes activities, private tuition etc for your kids. Ignore the debt that is late and try to get current on the critical debt - the IRS and roof over your head.
niagara_guy
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Re: Employer retirement plan withdrawal restrictions

Post by niagara_guy »

I'm glad that you have asked for help here. Maybe the combined wisdom of Bogleheads can help you.

Please post your assets and liabilities (what assets you own and what liabilities you have):

Assets:
2000 Honda Accord $6000
retirement plan $275,000
total:


Liabilities:
car loan $2000
back rent $16000
credit card debt $1000
total:

And, please list your monthly income and expenses:

income:
wages $5500
total


expenses:
rent $2000
car payment $400
fed taxes $500
fica $200
state taxes $300
total

Give us some numbers to work with, you can go back and edit the data later if needed.

If you post these numbers asap maybe we can help.
Topic Author
CoastPlateau
Posts: 3
Joined: Wed Apr 14, 2021 7:28 pm

Re: Employer retirement plan withdrawal restrictions

Post by CoastPlateau »

Thanks again! Below is my first attempt. I'm pretty sure I'm missing some expenses because they currently add up to only around $4,800. But you can assume the difference between that and my paycheck is some more money that I'm spending unwisely/impulsively. Also I rounded some of the values (such as rent) so the totals may not match exactly. But they are close enough to give you the idea.

Finally the 2020 taxes are currently $0 but will surely go up when I finally submit my tax return by May 17.

Thanks again for any help.


ASSETS
==============================================
CASH VALUE
CASH ON HAND $85
CHECKING ACCOUNT $584
SAVINGS ACCOUNT $0
MONEY OWED TO ME $0
---------------------------------
SUBTOTAL: $669

RETIREMENT ACCOUNTS VALUE
EMPLOYER PAID $281,901
PAID FROM PAYCHECK $11,598
---------------------------------
SUBTOTAL: $293,499

LIABILITIES
==============================================
RENT VALUE
BACK RENT $16,000
---------------------------------
SUBTOTAL: $16,000

TAXES OWED VALUE
2020 FEDERAL $0
2020 STATE $0
2019 FEDERAL $16,490
2019 STATE $3,838
---------------------------------
SUBTOTAL: $20,328

CONSUMER FINANCE VALUE
CURRENT CREDIT CARDS $1,100
DEFAULTED CREDIT CARDS $64,009
---------------------------------
SUBTOTAL: $65,109

PERSONAL LOAN VALUE
RETIREMENT 1 $10,372
RETIREMENT-2 $3,565
DEFAULTED 1 $6,000
DEFAULTED 2 $11,000
---------------------------------
SUBTOTAL: $30,937


INCOME
==============================================
Salary/Wages $5,700


EXPENSES (MONTHLY)
==============================================
Mortgage/Rent $ 2,375
Federal Tax Repay $300
Electricity/Gas/Oil $ 115
Phone $ 231
Cable/Internet $ 236
Public Transportation $ 150
Groceries $ 900
Dining Out $ 400
Salon/Barber $ 20
Streaming Services $ 40
Sports Sites $ 50
---------------------------------
SUBTOTAL: $4,817
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Nate79
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Location: Delaware

Re: Employer retirement plan withdrawal restrictions

Post by Nate79 »

Well there's the problem. You are living in a place that you can't afford. As a secondary problem your phone bill is insanely high.
Oldaroo3
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Joined: Tue Feb 16, 2021 8:09 pm

Re: Employer retirement plan withdrawal restrictions

Post by Oldaroo3 »

Lots of places to make cuts. Groceries $900 and dining out $400? $1300/ month for food? Something is wrong there. I'm assuming you are single, unless I missed something in your post. Cable $236 and $40 for streaming services. $276/month to watch TV/Internet?

You need the Dave Ramsey method: Rice and beans, beans and rice. May be difficult for a bit, but it's all about choices.
My suggestion would be to start writing down every penny you spend. It really makes you stop and thing about what you are spending your money on. At least it did for us. Just writing down what you have so far is probably good first step. You can clearly see where you need to make choices between wants and needs.

Best of luck to you and I truly hope you can get yourself out of this situation as soon as possible.
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