[USER]

I am about to change jobs and have the option of taking my retirement funds in cash or moving it over to my new employer.

My debt is quite. But if I take the cash I will be taxed heavily.

Do I use the retirement cash to pay off debts or do I rather carry it over and try to cut my expenses and put more into paying off my debts?

I am turning 40 this year.

[Victoria]

Before you do anything – check whether you can keep the funds where they are and check which is a better option for you – keep the funds where they are or roll over into the new company’s retirement option.

Then decide which account option is best – BUT taking out any funds is not a good idea – those funds took years of funds held from each paycheck and it will take you a lot longer to build up the funds if you take them out – the early withdrawal penalty and taxes will more than double the total of funds you withdraw.

[LaNae]

You can roll it over to an IRA. Never touch your retirement. 20 years will be here before you know it and you will be glad you have the income.

As far as your debt. Set a payment plan and stick to it.

It may mean eating beans and rice but you can do it.

[Kerry]

I would roll it over. Vanguard is a top-notch brokerage firm that will help you roll over your funds to an IRA.

Just call them and they will walk you through everything.

[Melissa]

You’ll have to pay 10% tax on whatever you take out and then you’d additionally have to pay income tax on it in your 2025 taxes.

I cashed mine out in this same scenario when I was in my mid 20s (and didn’t know any better) and I ended up losing about 30% of it.

So, I’d recommend against it unless you’re really in dire straits!

[Ellie]

It’s usually worth it to keep it in any retirement account, whether that be a personal IRA/Roth IRA or your employers.

That said, I had to move states last year and pulled a BUNCH out.

I paid a LOT in federal taxes, but I also paid off about $30,000 in debt. Now I have 1 payment instead of 4, and I feel free.

The reason that worked for me was because I am 30 and knew that being able to pay rent in my new state was more important at the moment than having retirement I can’t touch for 25ish years.

Since you’re 40 it’s a different question. Will you need the retirement egg in 15 years, or will your debts overwhelm you before then? Idk your position, but if you need the cash now you need it.

[Cindy]

Do not cash out your retirement. You will lose money because of the taxes and will certainly miss it when you retire.

[JoAnne]

Carry over, you would gain too much interest/ accruing value.
Honestly, I heard too many stories of folks who took the money to pay off debts / mortgages etc….

And never got around to repaying that money back to their accounts…

the time between 40 and your retirement will go quicker than you think.

[Rachel]

Carry it over. The penalty is a flat percentage that you cannot write off on taxes…plus you have to pay taxes on it as income as well.

Look at ways to cut your spending instead and stop your additional contributions while you pound away at your debt.

[Lynne]

Roll it over to your new employer. You will not be sorry. Find another way to pay your debts.

Can you take a part time job or side hustle for awhile to pay them off?

[Judy]

Roll it over. Between taxes and loss of growing what you already have, it is unlikely to be of net benefit to cash out. Also, look at how you got into debt.

Is there anything you need to change to avoid accumulating. mote?

Life happens and car/ home repairs, illness etc happen. But if there are things you have control over try to manage a budget to pay down the debt.

[Sherry]

Don’t do it!!! Let your new employers retirement fund handle the transfer. Then work on paying down your debt. Get a side hustle if you can.

In 30 years you will be thanking yourself

[Teresa]

Your 40—can you do half debt. Half roll over? Or penalties to high? Debt really cramps people.

You are old enough, likely got better money management skills.

[Heather]

Unless you’re on the verge of homeless or starving, do not cash out retirement accounts

Go through several months of bank and credit card transactions to see where you might have any spending leaks

Then track every dollar you spend going forward

[Donna]

You can borrow from your 401k to pay your debt and pay yourself back..a loan..just a thought

[Lucinda]

I quit a job in 1999 after putting into retirement for 12 years. Just kept it in the fund, and now it will be my primary retirement fund.

It makes a lot of sense to use current funds and a frugal lifestyle to clear your debt. Good luck.

[Mindy]

I generally go with the ‘roll it over to an IRA’ concept. However, I also did what you’re thinking of doing. I took about $5k out to buy new furniture, etc.

because I was living in a furnished apartment as well as some bills, just to get out from under the debt.

I didn’t realize how much of a tax burden it would be until the end of the year.

Doing it over again, I’d probably kept my money in the retirement fund (don’t put it in the new employer’s retirement plan) and buy my furniture from a thrift store. JMHO.

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