Borrow money from 401K to pay off debt?

[sunflower100100]

what happens if you take a 401k loan and your employment ends (for whatever reason)?

Then I have a big problem on my hands...
Anyway, thank you guys for all your help!
I really appreciate your help and wisdom

[DoingHomework]

My attorney fees are usually 1-2 K per months...

So you are paying $1000-$2000 a month to fight a war rather than use diplomacy to resolve a conflict.

I have no knowledge of your personal situation regarding the custody battle but it seems to me like approaching that conflict in a different way would be enormously rewarding in ways that go beyond stopping the bleeding of $18000+ a year.

[LMoot]

borrowing from your 401k should be an absolute last resort. if you're freaking out about the market, you're checking it too often. work on eliminating your credit card debt, keep maxing the 401k if at all possible.

Last resort? Really? And what were to happen if OP lost their job and couldn't pay the balance on credit cards? With the 401(k) the worst thing that will happen is the balance owed will be treated as a withdrawl, in that it will be treated as taxable income with the 10% penalty when the next tax returns are filed.

Another reason a 401(k) loan should not be considered a last resort. If the worst thing that can happen with the 401(k) loan is that it gets treated as a withdrawal, then it probably makes more sense to say that a withdrawal is the later resort. Paying interest on a cc can also be considered a later resort, because the interest you pay could be quadruple what you would be paying on the 401K loan, and unlike the 401(k) loan, that interest does not get paid back to you.

And I can think of many more risky/costly ways of borrowing money than taking out a 401(k) loan.

OP, I suggest you borrow the min you need from the 401k, to pay off/down the debt currently accruing the most interest, then direct your income towards paying off the 0% promotional balances before they expire.

HOWEVER, before you do anything, since this is an ongoing issue, you really need to reevaluate the costs of the custody war and make a commitment to not exceed more than you can afford (more than you can pay from income). It's one thing to take borrowing risks to resolve a past issue, but your risk factors becomes exponential if you are borrowing to continue to pad. Paying interest while continuing to borrow, does not gain you points for either side. You will find yourself borrowing more just to be able to pay the interest on what you previously borrowed...and more to pay interest on that. The goal should be only using income towards paying 100% principal, or cash, not interest. The irony is that seems in a lot of cases, those who pay high interest, are the ones least likely to be able to afford paying interest.

[DoingHomework]

borrowing from your 401k should be an absolute last resort. if you're freaking out about the market, you're checking it too often. work on eliminating your credit card debt, keep maxing the 401k if at all possible.

Last resort? Really? And what were to happen if OP lost their job and couldn't pay the balance on credit cards?

BF is one of those guys I don't always agree with even when he butts in with his good sense. You LM on the other hand I usually silently agree with. This time though I think borrowing from a tax sheltered account is a fundamentally bad idea - a last resort.

This is a problem that can be solved without invading the 401(k) and should be. There are reasons to invade a 401(k) and they are, as you know, codified in statute. Winning a custody battle is not among those reasons. So why should shifting expenses make this a valid situation?

OP should pay his debts with cash flow and solve his other issues as he sees fit. If he wants to make life style sacrifices to pay lawyers that's his choice. But the cash to pay those bills should not come from retirement savings.

[LMoot]

You LM on the other hand I usually silently agree with.

Ah well. Glad to know I'm the Trump of GRS.

[sunflower100100]

My attorney fees are usually 1-2 K per months...

So you are paying $1000-$2000 a month to fight a war rather than use diplomacy to resolve a conflict.

I have no knowledge of your personal situation regarding the custody battle but it seems to me like approaching that conflict in a different way would be enormously rewarding in ways that go beyond stopping the bleeding of $18000+ a year.

I have tried diplomacy, but my ex does not speak the language of diplomacy...
Regardless, I think we are close to being done, at least for this year...

[sunflower100100]

Thank you guys for all your help
I appreciate it

[Smurfette]

Without having read all the details in your rationale, I would advise you to find a better way to pay off the debt. What I've learned is that borrowing money to pay debt only resolves a symptom of a deeper problem with budgeting and cash management.

I would hate to see you borrow the money, pay off the debt, then lose your job and now you have to pay all the money back. OR if your debt is consumer debt--run it up again and then you have a bigger problem.

Is there an opportunity to take a side job? Any way to cut expenses? Increasing income or decreasing expenses are the way to go on this one. It may be a long, tough slog, but it will be totally worth it in the end.

Good luck!