401K

Madamez

You can do whatever you want.

However, if I were in your position, I would NOT be taking out a 401(k) loan. As you know, if you ever get laid off or fired or had to leave your job for whatever reason, the loan is repayable in FULL within 90 days. And if you were in a position where you couldn't immediately repay the loan, it's considered an unqualified withdrawal, which means you have to pay taxes on it at your marginal tax rate, as well as the 10% additional penalty on top of the taxes. If you can't pay, it's not a bank, but Uncle Sam who comes after you.

Now, if you wanted to actually take a distribution and pay taxes on it, I guess you could do that, instead of a loan. At least you know where that leaves you.

Of course, if you have the option within your 401(k), you can consider investing a small amount in individual stocks or in precious metals. Or, you can reduce your 401(k) contributions and instead fund a self-directed IRA or Roth IRA or use the money to buy what you need to prepare. It depends on how bad you think things will be, whether you think you'll have to repay a loan at all, and in what kind of timeline.

The main problem of course, is that none of us know when the economic collapse will happen. It could be within two months It could take another 5 to 10 years. And who knows? Maybe the government won't be able to enforce collections - or, in a collapse situation, the government could instead outsource it to private collectors who make personal visits. Isn't that what a lot of politicians want to do these days? Privatize?

For prepping, I would start small with the basics of the "What Should I Do?" series, and slowly add to that. By example, I would start with a a two-to-three week supply to take care needs due to a natural disaster (hurricane, earthquake, blizzard, tornado, tsunami). For more long-term goals, I would set up a 6-month plan of what I can reasonably expect to save and purchase and prepare within 6 months to extend out supplies or preparations to a month or two, and a 1-year plan for what to do to extend out supplies and preparations to last for up to 4-6 months. Beyond that, it's about continuing to add to what you have and making longer-term goals.

There's a great article in that series called Prepping on a Shoestring:
http://www.peakprosperity.com/blog/prepping-shoestring-how-prepare-when-...

For what it's worth, I'm the sole breadwinner of a family of four. Money is tight and we live in a one-bedroom apartment.

Poet

I think the reason for that is what Poet pointed out. When you remove your money out of an account like that, you take almost a 50% hit in taxes. Most likely, that is why they only let you "borrow" up to 50% - That way, when you get laid off, the 50% left in the account will go to pay the taxes.

Normal folks like us don't stand a chance against the "system". The IRS WILL get their money.

Now, here is something to think about.

Do you have debt, consumer, car, or home mortgage? Except for the last, calculate what you are paying in interest on those accounts and I would be willing to bet that it is very near (on an annual basis) the hit you would take in taxes if you removed that money from the 401K. That hit only happens ONCE. The interest paid on those loans happen every year!

So, you will have to "run the numbers" for yourself to know which is better. My thought is this - IF you are taking the money out to pay off debt, then great! IF you are taking the money out to buy SPAM, bullets and a water filter - leaving yourself with other debt... Don't do it!

Remember, the "average" person can't fight the financial system. Some may say to keep the debt and pay it off later with highly inflated dollars which make the debt "look" smaller. I think that is a gamble I am not willing to take.

Good Luck!

RNcarl is right. I forgot to mention that some states not only tax, but ALSO add a penalty, so it's not just federal tax and 10% penalty, it's also state tax and state penalty. So a 50% tax is not unheard of.

Also, if you have debt with a higher interest rate than what you can reasonably expect out of a 401(k) investment's "growth" (including factoring in any possibly-vested employer match and taxes you'll pay either now if withdrawn now, or later in retirement), you may want to pay off the debt first before furthering any additional savings.

Poet

Ah, so THAT is how you arrived at the near 50% figure.... now it makes sense.  It's easy for me to forget about state income tax (we don't have one in Alaska... yet).  And I have never heard of a state income tax penalty for early withdrawal.  What a load of *#@* that is.  How many states do that?

I myself will be cashing out my 401k in May to pay off the rest of my student loan debt.  In reference to your example, the interest rate on my consolidated loan is very low so most conventional financial types would probably say I'm doing the (even more) stupid thing.  From my perspective, I think it's just as likely my 401k will lose value in real terms, maybe even in nominal terms too.  And considering this student loan debt (the only debt I have) can never be discharged or forgiven if for some reason I'm unable to keep paying, that low interest rate doesn't give me much comfort.  IMO it's just as likely we'd see some 21st century version of debt servitude as we would some large-scale debt forgiveness initiative, depending on how much power the banks and financial institutions manage to retain.

- Nickbert

Ahhh....

I forgot about that "got-cha". Yes, some accounts do not let you do withdrawals unless you leave the company or die! - Or retire (yeah right) It must be the way the company structures the account with the brokerage company who holds the money.I am sure it is to do two things, one, maximize the profit of the broker and two, maximize the tax savings of the company.

Again, see, each person has their own details to work out.

As for switching it to an IRA I doubt they will allow that. See, the brokerage house is making a profit from your money so they don't want you running amok managing your own money. Plus, the (I) in IRA is for Individual.

Good Luck!

C.

Poet said, "Also, you can't just switch the 401(k) to an IRA unless you left your company of employment and then did an IRA rollover (gotta carefully plan that)."

This is what I wrestle with.... I have a job that I love, and after 28 years as a corp. engineer, I have significant savings tied up between my 401K and my lump sum pension savings... both of which I would love to have in a self-directed IRA.  

If there really is going to be a dollar destroying event... then I should really quit, even if it means taking a cut in pay... and do some combination of rolling over (and into PHYS and PSLV) and paying of taxes and penalties in order to get control over this money and get it into forms that will survive into the next monetary system.  Confounding ....... .