What would you say to the following question? Should I rollover my old 401K, worth about $15,000, or should I pay off a current 401K loan with it? The interest rate is 2.25%.
Let's assume there are no other details provided, or feel free to make your own assumptions when you answer.
I will chime in later today with my answer. Oh, and this isn't about me or my family.
I wrote a post about our dental insurance on Our Money Blog yesterday. I have completed 4/20 workouts as of today!
What Would You Say?
March 5th, 2014 at 04:55 pm
March 5th, 2014 at 06:13 pm 1394043215
March 5th, 2014 at 06:25 pm 1394043932
March 5th, 2014 at 06:32 pm 1394044342
I'd say a 401k loan would be of the topmost priority to pay off (because it will trigger taxes and penalties if you leave your job with loan unpaid).
But, I don't believe you can use an old 401k to pay off the loan, without triggering taxes and penalties. So, yeah, I'd vote for the rollover.
March 5th, 2014 at 07:41 pm 1394048489
Pay off the debt with current income, not with retirement savings.
The interest rate is low, so even if it takes a year to kill it and it is $10,000 in debt, you are probably going to pay less than $200 in interest for the entire year.
Paying the loan off with retirement savings, or borrowing from retirement savings in the first place, is exactly the same thing as stealing from you future self. If you could go on a trip that would guarantee that in 5 years you would get sick and have to spend $5,000 in hospital bills? Of course not.
March 6th, 2014 at 01:52 am 1394070765