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Half the 401k and student loan debt.

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NeverEnough28 posted 9/4/2020 11:26 AM

Question if anyone's been in a similar situation. I'm getting half my husband's 401k and half his military pension. I'm 32 and just started a great job with great benefits that I could see myself staying at for along time essentially racking up a good 401k myself

My question is, I have alot of student debt, and it makes my debt to income ratio look ridiculous. I'm debating on taking the cash value of my half of his 401k and paying off my student loans and just being done with it. My credit score is great I could basically have anything I wanted if my debt it income because of students loans didn't look like crap.

So being as I am probably going to be in the work field for another 33 years, plus I'll get military pension money after he retires. Do I see if I can take the cash value of the 401k and pay off my student debt, or do I roll it over into my own 401k?

apache posted 9/4/2020 11:39 AM

You really need to talk to a financial advisor, unless one weighs in here.

I will say with 30 years ahead of you, what is a tiny 401k now, could very easily ( and really should be) 7 figures by your retirement age.

Trust me, I'm there now and so is the 401k. I didn't start out breaking records adding to my 401k either. (Stock market can be great)

Will you save yourself anything approaching 7 figures (including accrued interest) by paying off student loans?
I doubt it. Small sacrifices now will pay you huge benefits sooner than you think. Make extra payments and speed the process and you'll be much further ahead.

Good luck

thatbpguy posted 9/4/2020 11:48 AM

If you place the money into your 401K, it grows. If you pay off your student debt, it does not. Think long term. My $0.02.

NeverEnough28 posted 9/4/2020 12:39 PM

I guess my biggest thing is i cannot buy a house, get an auto loan... Get any kind of loan because my debt to income ratio is awful now without him, even though my credit is good. I'm getting half of what he has in his 401k which is probably around 150k being my share. Half would pay my loans half would go into my 401k. It would still out me ahead of where I am.

lieshurt posted 9/4/2020 12:52 PM

Personally, I would pay off the student loans.

Phoenix1 posted 9/4/2020 13:36 PM

I would pay off the student loans. Just be sure to check on any tax implications from withdrawal as opposed to rollover so you don't get any unpleasant surprises next year.

Bourbonhelps posted 9/4/2020 13:39 PM

Fyi, $150k will grow to $1.1 million at 7% return compunded semiannually in 30 years.

Plus the early witdrawl penalty of 10٪ plus income tax on the amount.

[This message edited by Bourbonhelps at 2:06 PM, September 4th (Friday)]

Lieswearmedown posted 9/4/2020 13:40 PM

IF IT IS POSSIBLE (and the best resource you have is the entity who holds the 401k that you will receive from the divorce i.e., Fidelity or Schwab) then consider borrowing against that 401k to pay off the student loans. THEN, you are securing your own loan, donít have to take all of it, and youíre paying yourself back. That may mean holding off on the car or the house for a few years, but ultimately it wipes out your student loan, the monthly payment is more manageable, and you arenít wiping out what could be a significant Retirement asset. Again, that means you will need to forgo the house purchase or a car purchase for a while, but you would have a finite period of time where once the debt is gone, it is really gone.

Neanderthal posted 9/4/2020 13:51 PM

Look up Cares Act. Because of all the covid problems, you may have more options now. For example the 10% early withdrawal fee can be waived. Also more 401k loan options are available.

So maybe roll it over into your 401k and then pay your student loans?

Your 401k financial advisor should be able to explain your options.

phmh posted 9/4/2020 18:13 PM

What interest rate are you paying on your student loans?

BearlyBreathing posted 9/4/2020 20:23 PM

I agree that this comes down to a real math problem and you need to talk to a financial advisor. What is the interest rate on your student loans? If it is really low then you need to keep the loans and keep the 401(k) and just pay down the loan as you go. As long as youíre making payments I donít think itís gonna be hugely detrimental to your credit. Leaving at 401 in place is the very best strategy for retirement income if you can do it. Compound interest as your friend and even though it might not be a lot of money itís already doing so much work for you. Given the stakes set an appointment with a financial planner or a tax advisor to figure out whatís best and go from there

[This message edited by BearlyBreathing at 8:25 PM, September 4th, 2020 (Friday)]

DigitalSpyder posted 9/5/2020 06:16 AM

Its going to depend on the return rate of the 401k you would be rolling it in to, and the interest rate on your student loans.

You could always pay off the loans and then take what you were paying on them, and put it into your 401k each month in addition to what you normally contribute. If your employer matches contributions, and you have maxed what they will match, what you add, up to their cap, is essentially doubled.

steadychevy posted 9/5/2020 06:56 AM

First thing is to determine the effects of cashing in 401k and paying student loan. My understanding of things from the US is that you will be charged a 10% fee for early withdrawal from your 401k plus it will be taxable. Because of Covid the 10% fee might be waived but the withdrawal would still be taxable. If you are in a 25% tax bracket you would lose 35% of your withdrawal if the 10% penalty applies.

Would you take out a 35% interest loan to pay off another debt at a much lower rate? The money invested early is what compounds to massive amounts 35 years later. If you borrow from your 401k to pay the student loan you are paying yourself the rate of interest you pay on the student loan and are foregoing the potentially much higher rate of return it would earn if left in the 401k and wisely invested.

I think you need to talk to a tax advisor and a financial advisor. I suggest you google Dave Ramsey and listen to him on his YouTube presentations.

homewrecked2011 posted 10/17/2020 03:30 AM

Call the IRS to find out current details, but when I got divorced in 2012, it was the one time you were allowed to withdraw the 401K funds without the 10% penalty- I canít recall if itís during the tax year you get divorced or once the QUADRO is completed, or within a certain timeó call the IRS. You still have to claim the withdrawal at income. Will you need to also withdraw for your down payment, if so, you might want to do it all at once if the above is still in effect.

If you still have the student loans, get the payments as low as possible before applying for a mortgage.-then your debt to income ratio will be lower. DTI is the percentage of monthly debt payments vs gross income, Do you need your DTI ratio to be lower to qualify for the house you want? I would find a good lender and talk to them first. They might say to make payments on the SL to help them get you a lower interest rate, IDK.

I prefer to have a big savings acct- I sleep better at night knowing the $$ is there. But my best friend would rather have zero debt. Personal preference, I guess.

[This message edited by homewrecked2011 at 3:36 AM, October 17th (Saturday)]

ZenMumWalking posted 10/17/2020 07:17 AM

Like Lieswearmedown suggested, consider BORROWING from the 401k to pay off (or at least down) the student loans. You will have to check that this makes it look good for you debt/asset wise, and you will have to consider whether this is a good action for your specific situation, but it seems to me that overall it is better than losing the 401k by paying the student loans. Here, you are borrowing the money from yourself and once paid back you will still have that money in the 401k. Win-win.

jmho, ymmv

marchmadness posted 10/17/2020 07:19 AM

Question about the military pension....will you collect based off 1/2 the current value? Which is not the necessarily the same as 1/2 the value at time of retirement.

Ratpicker posted 10/18/2020 12:14 PM

Marchmadness, a military pension is divided in two different ways. Either a payment is made between spouses or DOD sents it if there was a MPDO.

If married for at least 20 years that overlap with 20 years of military service, the former spouse is a 20/20. Under those circumstances, the pension is divided by a Military Pension Division Order simular to a QDRO. The DOD will divide the pension as ordered and send the payment directly to the former spouse. It is up to the separation agreement or the judges order to determine the percentages or a specific $ amount. If it is 50/50 then the COLA increases apply every year. When the military member dies, the pension payments stop. So the Survivor benefits need to be addressed in the MPDO.

With a separation agreement, the two parties decide on the method to divide the pension. Again if a 20/20 spouse, with a MPDO the payments can be sent via DOD system. If not divided via MPDO the service member sends the $ directly to the former spouse.

There are a few specific details, but this is a nutshell version. The internet has reliable, military references with good information.

secondtime posted 10/18/2020 18:57 PM

With 75K from your ex, how many times your current gross income will you have in retirement?

If your retirement +75K is at least twice your currently gross income...then yes, I probably would go ahead and pay off your student debt.

If your retirement accounts +75K is less than 2 times your current gross income, then I'd put more in retirement and just pay down your student loans.

Or put more in retirement and save 15K for a cash car when you need it. Then you don't need to take out a loan for a car.

I would not count on working until you are 65, unless you have a way to know your future with 100% certainty. How I felt about work at 25, 35, and 45 have changed in ways that I didn't predict.

Anna123 posted 10/18/2020 19:22 PM

Call Dave Ramsey :-). He will tell you to save for a car or only get a clunker.

Paying off a loan so you can take on another, and now with no savings ---- Not a good feeling for you after the new wears off. The nicer car and nicer home will not make up for it. If your job is truly good over the next few years you can live on beans and rice, save, chip away at the debt, and get into a better position with a solid foundation.

Congrats of the great job!

Vegas1985 posted 10/20/2020 17:39 PM

I'd just like to say that you don't have to pay the 10% early withdrawl tax when you cash out a 401k from a divorce.

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