Cashing out 401k a good idea?

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I am in need of some advice. I start nursing school in less than a month and I am extremely nervous about it. I have done some research about nursing school and I know it will be highly intense. So intense, I'm not sure if I will be able to work during school. I am planning to work 20 hours a week at my call center job just on the weekends, but I am thinking about not working at all and just cashing out my 401k when I leave my job (taking a full distribution) which will equal to around 10k after the 20% penalty. I understand there will be other tax penalties involved, but this is my only source of income once I'm no longer employed during nursing school. My nursing program will already put me 40k in debt, so I don't want to take out any additional loans if I don't need to.

It took me about 3 years to build my 401k where it is since my current job matched up to 5%. Im only 25, so I feel like I have plenty time to rebuild it. Would cashing out my 401k be worth it? I have asked others, but they aren't aware how intense nursing school is and how much effort is involved.

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Specializes in retired LTC.

How about continuing to work without doing your 401? Give yourself a chance to determine how difficult (or NOT) your schoolwork will impact your ability to continue your current job.

Just know everyone responds differently to school - some students manage quite well to work or raise children and they find school to NOT be overwhelmingly difficult. And yet there are others who have found their schooling stressful.

Also each class is dependent on various factors - some classes are easier than others because of the course curriculum or the instructors differ, early classtimes, long commutes, etc. So one semester may be manageable, but the next one will be a monster!

Give yourself a trial period before you dip into the 401. It might be a shame to dip into your savings too prematurely while longevity will make that nest egg grow. And there's prob a whole slew of folk out there who regret that they ever touched their 401 when it could have been left alone - life happens alone the way and it might be difficult to start up savings again.

Good luck.

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Thank you for your response! Hopefully I am that student that can manage both school and work. I definitely plan to work as much and as long as I can before I go to that extreme, I just wanted to see if it's a good option/idea. Those who have been telling me how hard school was for them were older individuals who hadn't been to school in years. In my case, after high school I continued school part-time for about 5 years and earned my AA. I'm familiar with school so hopefully I will be able to handle it better than others.

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Specializes in NICU.

DO NOT CASH OUT YOUR 401K!!! $12.5K at age 25 compounded quarterly at a 5% return until age 65 would be worth almost $91k. The loss of $81k in interest and dividends over the next 40 yrs. far outweighs the current benefit of $10k. Find anther way to support yourself and pay for nursing school and it will be worth the sacrifice in the end. Focus on your homework and tests and then working 15-20 hrs a weekend. That is what I did and it worked out.

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I agree with not cashing out your 401K.

Get some financial advice. Many places will look at your concerns first before charging you when you become a client.

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Don't tap into your 401K! Yes, you are young but you are already ahead of many others by contributing toward your retirement at an early age. Life happens and there will always be a reason to take that money. Pretend that it doesn't exist. It'll be worth it in the long run when it has a chance to grow. If possible, continue to contribute the 5% company match because as you know, that is free money! Contribute anything if not the max. And if you aren't able to contribute at all, look into a Roth IRA because the contribution is more flexible. You can contribute what you can, whenever you can (up to the max) so you are still saving for retirement.

I worked 20 hours per week during my first semester and passed so you can do it too! Others passed while working full time, raising children and working multiple jobs. Give yourself a chance to see how you do. You can always resign later on however, it will be harder to get your job back. If you need a day to study for an exam, you can get someone to cover your shift, take a vacation day or call out sick. If you need to work, the first semester truly is the easiest!

Necessity is the mother of invention! Can you move back home to save money? Can you downgrade your cell plan? Cancel cable? Can you sell old textbooks and other stuff on ebay or hold a garage sale? Do you really need to pay for internet with all the free wifi/ internet access via coffee shops, school, libraries and work? Also apply for financial aid and scholarships.

Just as people have different levels of pain tolerance, everyone handles stress differently. Do you manage your time wisely? Do you procrastinate? How are you at multi tasking and retaining information? Does school come easily for you and are you a good test taker? You know yourself best. Good luck!

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Don't cash out the 401K you are going to get hit with taxes in addition to the penalty when you file this year. You are basically doing the equivalent of taking out a loan at 50% interest by the time you add in taxes in penalties?? Would you go down to the bank and do that?? I suspect NO! Here is a calculator that will help you see what you total tax / penalty hit would be and what your nest egg can grow into.

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if you use your 401K for educational expenses you are not penalized. Its actually better to put money in a 401k for educational purposes than a 529. I truly believe that if you are going to school for nursing its no joke and you really want to do well in school put all your energy in school and stop working IF POSSIBLE. You are only in school for a short time so you can earn more money later.

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Specializes in Clinical Research, Outpt Women's Health.

Bad move. Don't do it. You can handle both.

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Like one of the commenters stated, wait to see how it goes during school. I worked part time during school, but that was almost 20 years ago (and I did it all in 2 years..ADN). I work with someone who is going to school, works full time, and is raising her family. If you do need extra money while you go to school and continue to work, you can take a loan against your 401k. You pay yourself back with a very small interest rate. I just don't think it's a good idea to take it out right now. Good luck with whatever you do.

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Specializes in Adult and Pediatric Vascular Access, Paramedic.

Hi,

As others have said trying working while in your nursing program, it is doable, and I have worked full time through all of my degrees.

Also there are only certain restricted circumstances where you can do a hardship withdrawal out of your 401K, that does include school, but it needs to be extenuating circumstances like you are already in a program and cannot get loans to continue the program. If you are able to get loans for school it is highly unlikely that your 401K administrator will allow you to do a hardship withdrawal. They are strict about it because they get audited every year and can acquire fines if they do not stricly follow the federal law with regards to what qualifies. Your plan administrator actually has the ultimate say in whether they will allow you the withdrawal.

You could consider a 401K loan, which you can pay back over a five year period with interest. The interest goes back to you and it does not go on your credit report. The downside is if you leave your job that may revert the loan into a withdrawal with the same penalties and generally a loan will only allow you to take out half of the money that is in your 401 K. Also you can not withdraw the total amount for a hardship loan either, so if you have 10K in your account you will likely only get around 6 or 7 K, then there will be a 700.00 penitlity, plus 700 in taxes, PLUS you have to count it as income! By the time you are done paying all the taxes an dpenilities it will hardly be worth it!

Just keep working!

Annie

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I would not cash out my future for something that is not in my hand yet. Remember. A lot of people odn't make it till the end. In that case you will have lost everything.

On a more positive note. I worked while going through a 15 month accelerated program that made students pledge not to work. I had to.

But I was smart. I did weekend nights (was an LVN already). That allowed me to earn more than I would. During semester breaks, and holidays, I tried to cram in as much work as I could.

The other thing that helped is scholarships and grants. Don't break the bank just yet. Once you get admitted and start school, the scholarships and grants will keep coming. I managed to get grants worth of about $4000 per semester from sources such as a state fund I did not even know existed, from PTK and the local Visiting Nurses Association fund.

The bigges savings I managed to get away with was to buy bulk supplies of stuff I would need for the entirety of the program. I bought soap, paper towels, toilet paper, all kinds of supplies for the entirety of te program before it began. I did not have to worry about those while in school. I also saved money on food by cooking in bulk before the program began and between semesters and freezing in daily size packages. That was my biggest saving.

You could also get a roommate to shave off some expenses.

You can always get a loan from your 401K any time. Don't do it before you have tried all this.

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