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Question for the Money Doctors

Question submitted on Nov 15, 2012.

Question

I am thinking of taking a lesser paying job and using my pervious employer''s 401k earnings to supplement my income. Is this a wise decision?

Answer

Based on the limited information provided, I would generally say no. An exception to this general answer is if you have so much in your 401k plan that you can afford to take some out. How do you know if you have enough in your 401k plan to be able to afford to take some out? Total up all of your investments--brokerage accounts, retirement plans, etc. Take this total times 4%. Is the resulting number more than what you need to live on during retirement? If no, then I would not raid the 401k plan. This is just a general rule of thumb of course.

Other issues with taking $'s out of your 401k include the 10% early withdrawal penalty which apples to dollars taken out of retirement plans by individuals under 59.5. There are exceptions to this early withdrawal penatly. However, I would not go to this step unless the answer to the first question in above paragraph indicates that you have plenty of money in your 401k.

If you really want to switch jobs, a better approach is to reduce your standard of living (smaller house, cheaper auto, going out less, etc) to allow you to take the job that you want.


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