Should I cash out a small 401k to pay off debt?
Taking the 10% penalty to eliminate current debt is often easier than spending the time and effort to roll over a tiny balance from an old, short-term job. Many choose to simply take the hit rather than deal with managing a forgotten account.
What people tried
Every workaround mentioned in the threads below. We haven’t tested any of them — and nobody here is claiming they worked.
Found another way around this?
Share your steps and trade-offs so fellow engineers don't have to reinvent the wheel. No account required.
Should I cash out a small 401k to pay off debt?
- 1Rolling the small balance over into the new employer's 401(k) or an IRA (e.g., Fidelity).Did this help you?
- 2Paying off the short-term debt normally using regular income streams.Did this help you?
- 3Rolling the 401(k) into an IRA or current employer 401(k)Did this help you?
- 4Selling a small portion of taxable brokerage investments to pay off credit card debtDid this help you?
- 5Temporarily reducing monthly savings to pay down debt from incomeDid this help you?
- 6Leaving the small balance as-is to continue compoundingDid this help you?
In their words
Unedited, grouped by where they were said, most upvoted first within each place, each linked to the thread it came from.
“I have an old 401k plan that has only a few thousand in it. It's from an old employer that I was with for less than a year way back in 2007 or so.”source ↗
“My instinct is to just cash out, as it's small and just eliminate debts. But I am curious what other people think.”source ↗
“Honestly, I did this with a $5k "pension," my wife had. She worked a government job for like 1 year and had this built up. It was worth the penalty to me to just, not have to deal with it.”source ↗
“Was thinking of cashing out the $3k and taking the 10% hit as it’s such a small balance that it doesn’t even seem worth the time or effort to roll it over considering I could use the money anyway.”source ↗
Where this came up
People with this problem also raised
- 6How to pay off multiple small short-term debts and loans efficiently
- 10Should I drain my savings to pay off a car loan?
- 6Should I lower my 401k to pay off a mortgage faster?
- 5How to cash out investments for a house down payment
- 3Will it be too late to start investing once I’m debt-free?
- 5Is a small 401k loan a bad idea for cash flow?