Has anyone done this before. Dh's company switched to a new company several years ago. So he has two because for what ever reason he did not switch his old one to the new company. Honestly I think he just didn't bother to fill out the paperwork. Anyway we were going over our bill last night and in the last year we have managed to mount up upwards of $1800 dollars in medical bills. I just can't believe it. Well I can medical insurance is now where near what it used to be. Dh had two trips to the ER, I have had medical issues. It just has added up. Anyway dh made the comment he should just cash in that one account and pay these off. That would be such a burden off our shoulders. Anyone ever done this. I know there is penalties. It's not much more money then what we need so it's not like we will be rolling in dough. I will for sure talk to our tax guy but just thought I would ask here also. Thanks!

By Reds9298 on Sunday, July 24, 2005 - 10:27 am:

You will receive (I believe) a 20% penalty, possibly a 10% handling penalty, and any applicable taxes at the end of the year, unless you designate that you want the tax taken out now and at what %.
I'm rolling over two retirement funds right now, so I've been getting the info recently. You might be better off if you roll it over first, into a different type of investment, and THEN cash it out. The penalties will probably be less.
You have to get an authorization form from the investment company, and often you have to have the employer sign off on it before you can do what you want with it. (I think the employer has to verify that you are no longer employed with them.) I would say you can probably count on 30% being gone right off the top, but taxes now or later. Hope that helps and good luck!

By Karen~moderator on Sunday, July 24, 2005 - 01:35 pm:

Ditto Deanna. However, that being said, I'd probably look into other options, such as arranging payment plans with the hospitals, etc. My opinion is that you should only take money from a retirement plan as an absolute last resort.

I know $1800 seems like a lot - and it is - and I can totally relate. Not to minimize your medical costs, but just as a point of reference, we always have between $5000 and $6000 out of pocket medical AFTER insurance coverage annually. It IS a lot, but we have managed to pay it without hitting up the retirement accounts.

If you can decide on an amount you can comfortably afford to pay monthly to settle these accounts, I'd definitely give that a shot. The couple thousand you have in that 401K may not seem like much, but consider that you will have to replace it in some way, at some time in the future. Saving for retirement is HARD and every little bit helps and counts for something. JMO.......hope you aren't offended.

By Mommmie on Sunday, July 24, 2005 - 01:46 pm:

If you can pay the medical bills, plus taxes and penalities from cashing out, I would probably go ahead and pay the bills. However, I would also increase the amount he's putting into his current 401(k) and would direct deposit $100/month into a savings account to pay these medical bills as they come up in the future so it doesn't happen again. You are so right about medical insurance - it simply doesn't cover as much as it used to. We have to adjust our budgets accordingly. Oddly, for some people, they are better off waiving employer sponsored health insurance and using the county's indigent/uninsured facilities and paying nothing. It's like medical providers see you have insurance and sortof go crazy with tests and whatnot, leaving you with big bills.

By Ginny~moderator on Sunday, July 24, 2005 - 02:39 pm:

I'm with Karen. Don't cash it out. It is taxable income, first and foremost, so you will lose, I would guess, 10-15% off the top. Plus, 401(k) plans are "managed" by a company that does just that, and some do indeed charge penalties or other kinds of charges if you cash them out. And, whether the manager charges a fee, there is still a 10% penalty from the IRS for early withdrawal, based on my research:
http://www.raymondjames.com/ggb/faq.htm

So you will be giving the IRS at least 20% of that money. Not my idea of how I'd want to spend my money.

If you can work out some sort of payment plan for the medical bills, I would do that. If you pay $50 a month, that's about $11.50 a week. If you can pay $20 a week, you will have the bills paid off in less than a year and a half.

I would recommend that you roll over the 401(k) at the former employer into an IRA at some mutual fund - Vanguard is the one I know best, and Dreyfus is another - and let it just accumulate. Consumer Reports runs an annual article about mutual funds and how well (or poorly) they are performing, with a lot of information about how they operate. You can probably read this at your library.

If there is any way you can avoid it, don't "cash in" a retirement plan. You may think you need to pay that $1,800 off now to get it off your back, but you will eventually be retiring, and nibbling away at your retirement plan now is the best way to make sure that the only income you have when you retire is Social Security. Believe me, that's not the way you want to go.

By Karen~moderator on Sunday, July 24, 2005 - 05:53 pm:

... but you will eventually be retiring, and nibbling away at your retirement plan now is the best way to make sure that the only income you have when you retire is Social Security. Believe me, that's not the way you want to go.

That's exactly what my Mom did, that and constantly bail my youngest sister out of her never-ending troubles. And she ended up with nothing but Social Security as a retirement income. It was pathetic. That is NOT going to happen to me.

By Crystal915 on Sunday, July 24, 2005 - 06:52 pm:

Raymond James, the company from that link, is who we have opened our IRAs through. We went with personal Roth IRAs. If it were me I'd also try and pay off the bills monthly, and try and roll that 401K into a private IRA account. We sat down with our advisor and decided what type of fund would be best for us at our age and for our needs so we would not be dependant on any company retirement or even pension. You just never know what will happen, and this way the account is the same no matter where you work or what is going on. My parents had to rethink their retirement options after my mom's company (she'd been with for 19 years) decided "Sorry, we're eliminating our retirement plan." She had her 401K, but decided to leave the company that broke their promises.

By Reds9298 on Sunday, July 24, 2005 - 11:02 pm:

I just want to say that I think it's best NOT to cash it out because your retirement is soooo important, but I don't know your overall financial situation and if this is what you feel is best then just realize that the penalties may not make cashing it out the best choice. I agree with the others that as far as medical bills go, you can definitely get on a payment plan. We have really great insurance so I can't imagine having to pay and $1800 medical bill, but I know that's the norm these days. I certainly think though that $1800 is not too big to pay off monthly. Best of luck to you and do what you think is best for your family right now.

By Anonymous on Monday, July 25, 2005 - 08:27 am:

Thanks for the advice. Part of the problem is that they are to so many different people. For the times dh went to the er. We have the ER doc, hospital and radiologists to read the head scan. It's ridiculous. We used to have insurance that paid %100 percent. It goes down little by little each year. I did not realize it had gotten this bad though. I am ashamed to admit that a few of these have already gone to collections. That is why I am so worried to get these paid off. Not to mention there just is not a lot of extra money a month. I would have more then enough to pay this off at income time next year. But I doubt these people are going to wait that long. The bd part is to that I am still having medical problems and really need to get a second opinion but I don't want to run up more bills right now. Dh is going to call the company and see exactly what the penalties will be. If not worth it we will find another way. Thanks.

By Juli4 on Monday, July 25, 2005 - 11:26 am:

you can try to come up with a little money and try to settle. Say you have a 200.00 bill you say "we don't have alot of money right now We are really stretched tight but I can settle for 125.00 if you are willing. If not then it will be a while before I can afford to pay it. Make sure you talk to someone who can settle. sometimes they will and sometimes they won't . I don't know about smaller bills but I know for larger ones they will. do you qualify for medicare or something like that. You can take you back bills to them and prove you were within income guidlines. The thing is that most families make too much to qualify but also don't make enough to be able to take those kind of financial blows. We have been there. It also depends on how young you are. If you are still in your 20's or maybe 30 you may be able to take that hit and still recover fine before retirement. Good luck

By Jann on Monday, July 25, 2005 - 12:15 pm:

Don't cash in your retirement!!!
contact a debt managment mediation company, like this one http://consumercredit.com/howitworks.htm
they will contact the creditors, negotiate payment many times without finace charges and penalites, you write one check a month to the company.

By Ginny~moderator on Monday, July 25, 2005 - 01:14 pm:

With respect to Jann, some debt management companies are really scams, charging very high fees. At least three have been sued in Pennsylvania by the PA Attorney General. If you do decide to contact a debt management company, go to
http://www.nfcc.org/
which is a national not for profit association of not for profit debt counseling agencies. The member agencies operate under very strict rules, including the kinds of fees they can charge, among other things.

By Jann on Monday, July 25, 2005 - 01:47 pm:

Yes, I wouldn't go with one that charges fees. Most of the reputable ones do not charge fees to the customer. They get their money from the credit card companies.