vania-janet/multiturn-rag-retrieval-data huggingface dataset:
Excellent answers so far, so I will just add one additional consideration: liquidity. Money invested in a mutual fund (exclusive of retirement accounts with early withdrawal penalties) has a relatively high liquidity. Whereas excess equity in your home from paying down early has very low liquidity. To put it simply: If you get in a desperate situation (long term unemployment) it is better to have to cash in a mutual fund than try to sell your house on the quick and move in with your mother. Liquidity becomes less of an issue if you also manage to fund a decent sized rainy-day fund (6-9 months of living expenses).
http://www.socialsecurity.gov/retire2/agereduction.htm As a general rule of thumb on average you'll gain a similar amount of total money over time whether you start withdrawing early or not. Yes you get less money on each check, but you're also going to get more checks a whole since it's based on how long you live.  I personally don't try and adjust how I manage my money based on what decisions the government MIGHT make, but I also am fairly young so don't quite have the heightened concerns regarding social security others might have. I've pretty much always lived and invested assuming it wasn't going to be there at all by the time I retire.
For my purpose, it's a tax free emergency fund. Not retirement, unless and until you are saving so much in the 401(k) you need more tax favored retirement money. I wrote an article some time ago, the Roth Emergency Fund which went into a bit more detail. Last - keep in mind, this is my opinion. I can intelligently argue my case, but at some point, it's up to the individual to do what feels right. Paying 18% debt off a bit slower, say 4 years instead of 3, in favor of funding the matched 401(k), to me, you run the numbers, watch the 401(k) balance grow by 2X your pretax deposits, and see that in year 3, your retirement account is jump-started and far, far more than your remaining 18% cards. Those who feel the opposite and wish to be debt free first are going to do what they want. And the truth is, if this lets you sleep better at night, I'm in favor of it."
You will be rolling over the proceeds, since you can only deposit cash into an IRA. However, this should probably not affect your considerations much since the pre-rollover sale is non-taxable within the 401k and the period of roll-over itself (when the cash is uninvested) is relatively short. So, whatever investments you choose in your 401k, you'll just sell them and then buy them (or similar investments) back after the rollover to the IRA. If you're worrying about a flash crash right on the day when you want to cash out - that can definitely happen, but it is not really something you can prepare for. You can consider moving to money market several weeks before the potential date of your withdrawal, if you think it will make you feel safer, otherwise I don't think it really matters.
Math - The half-match is 3% or $3900. After 5 years, $19,500.  If you stay, you are vested, and have $20K (I hope it's actually far more) extra. For you, it's like 2 month's salary bonus after 5 years.  If you leave early, the good news is that even if the expenses within the plan weren't great, you have the money you put in, along with what vested so far. You move that to an IRA and choose your own thrifty funds or ETFs.  For me (as Duff said, there's no one answer, so to be clear, this is my feeling, or preference, not gospel) 6% is far too little to save as a percent of my income. So if the 401(k) fees ran say .8% or higher, I'd put in the 6% to get the potential match, and then save on the side.  Our answers might change slightly depending on the exact fees you're exposed to.
"This particular topic has probably been beaten to death already.  But from the other comments, it seems that splitting finances them is a popular solution on this forum.  I can see the individual benefit of this - makes it easy to go buy whatever you want.  But it can hurt too.  What if the situation changes, and you are no longer employed?  Your setup will cause stress because now you are having to ask your spouse to pay for everything.  If this works for you - congratulations.  But, fights may ensue - divorce may follow. I would like to offer an alternative.  In my situation, I bring home a paycheck, while my wife does not.  In this case, each of us paying 50% would simply not work.  Not to say my wife doesn't work - she works her butt off cleaning house, raising kids, etc. What we do is have any money that comes in go into a pot.  We budget (Oh no, the B-word!) out regular expenses (lights, gas, rent).  Anything that isn't allocated goes towards retirement savings (In the US, an IRA is an Individual Retirement Account), or towards a war-chest for big project (such as home ownership).  And each of us gets the same ""blow money"" allowance every week that we can do with as we please. Keep in mind, using this mentality allows the possibility of me staying home at some point in the future when my wife goes back to her dream job.  And there is no financial stress about ""whom owns what"", or ""who paid for what"".  We own it because we decided to pay for it."
There are a few considerations: Purely Financial: If you think you can make more than 6% (adjusted downward for the tax benefits of home interest deductions) on that $150K then no. Otherwise yes.  Update: A good point was made in another answer, if the 401K is not a ROTH, the tax consequences of withdrawing a lump sum like that will probably tip the balance in most situations towards not paying off the house. Risk: Paying off a mortgage reduces your liquidity. That is, it is much harder to pull your money out of a house note than to sell off some stocks/funds/cds. Put simply, if you run into trouble and need a lot of money quickly would you rather have a paid off house or $150K in the bank/near-cash investments?
Some of the expenses you describe may be eligible to be paid off by a 401(k) without incurring a penalty. As long as you do not mind paying tax on the extra income. If your tax bracket does not go up, then using your IRA may not be a bad idea. You should consult a tax expert and see which expenses can qualify for a withdrawal without penalty.  I believe medical bills and medical insurance costs are eligible to be withdrawn without penalty in some instances.
"Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market.  How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to ""vest"".  This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts.  This will make it far easier for you to qualify for a mortgage later on.  Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate.  First, there will be fewer chances for the rate to go up.  Second, even if the rate does go up, you will not owe the money very long."
No, it's a $10k withdrawal. You net what you net after federal and state taxes.  IRA? It has a similar penalty free $10k withdrawal option for home purchase,  so this might give faster access once you decide.  Given the choice between a withdrawal and a loan, I'd take the loan. As soon as you are with the new employer, ask HR about the rules for participating in their 401(k) and rules for their loans. If, for whatever reason it won't work for you, take $10K and transfer to the IRA, and the rest into the 401(k), if the 401(k) has good investments and low cost..  My answer focuses on the desire to withdraw the money. A loan is better than a withdrawal. Better than both is a delay and saving all you can for the downpayment. After the closing, I'd be mindful of spending, save all you can to retirement accounts and pay this loan off over the time good for you.
"Your question is based on incorrect assumptions. Generally, there's no ""penalty"", per se, to make a withdrawal from your RRSP, even if you make a withdrawal earlier than retirement, however you define it. A precise meaning for ""retirement"" with respect to RRSPs is largely irrelevant.* Our U.S. neighbours have a 10% penalty on non-hardship early withdrawals (before age 59 &half;) from retirement accounts like the 401k and IRA. It's an additional measure designed to discourage early withdrawals, and raise more tax. Yet, in Canada, there is no similar penalty. Individual investments inside your RRSP may have associated penalties, such as the dreaded ""deferred sales charge"" (DSC) of some back-end loaded mutual funds, or such as LSVCC funds that generated additional special tax credits that could get clawed back. Yet, these early withdrawal penalties are distinct from the RRSP nature of your account. Choose your investments carefully to avoid these kinds of surprises. Rather, an RRSP is a tax-deferred account, and it works like this: The government allows you to claim a nice juicy tax deduction, which can reduce your income tax at your marginal rate in the year you make a contribution, or later if you should choose to defer the deduction. The resulting pre-tax money accumulated in your RRSP benefits from further tax deferral: assets can grow without attracting annual income tax on earned interest, dividends, or capital gains. You don't need to declare on your income tax return any of the income earned inside your RRSP, unlike a regular investment account. Here's the rub: Once you decide to withdraw money from your RRSP, the entire amount withdrawn is considered regular income in the year in which you make the withdrawal. Thus, your withdrawals are subject to income tax, and yes, at your marginal rate. This is always the case, whether before or after retirement. You mentioned two special programs: The Home Buyers' Plan (HBP), and the Lifelong Learning Plan (LLP). Neither the HBP nor the LLP permit tax-free withdrawals.
"I'd not heard of being able to withdraw penalty free before.  So I looked it up.  It might be penalty free, but it's not tax free.  So if your marginal tax rate is 25%, and you withdraw 10,000 from a regular IRA, 1/4 of the money will have to come from taxes. Personally, unless you're in a huge hurry to buy the best screaming deal ever seen in your jurisdiction, I'd not touch the 401k...  but I would slow down 401k investing to be the minimum required to maximize the match, and throw the rest to saving for the house. Also, your pronouns are ""I,"" not ""We.""  If you'd like to be married, I would put off buying a home further, in case your future spouse doesn't like the home you pick."
"Given that the 6 answers all advocate similar information, let me offer you the alternate scenario - You earn $60K and have an employer offering a 50% match on all deposits. All deposits. (Note, I recently read a Q&A here describing such an offer. If I see it again, I'll link).  Let the thought of the above settle in. You think about the fact that $42K isn't a bad salary, and decide to deposit 30%, to gain the full match on your $18K deposit. Now, you budget to live your life, pay your bills, etc, but it's tight. When you accumulate $2000, and a strong want comes up (a toy, a trip, anything, no judgement) you have a tough decision. You think to yourself, ""after the match, I am literally saving 45% of my income. I'm on a pace to have the ability to retire in 20 years. Why do I need to save even more?""  Your budget has enough discretionary spending that if you have a $2000 'emergency', you charge it and pay it off over the next 6-8 months. Much larger, and you know that your super-funded 401(k) has the ability to tap a loan. Your choice to turn away from the common wisdom has the recommended $20K (about 6 months of your spending) sitting in your 401(k), pretax deposited as $26K, and matched to nearly $40K, growing long term.  Note: This is a devil's advocate answer. Had I been the first to answer, it would reflect the above.  In my own experience, when I got married, we built up the proper emergency fund. As interest rates fell, we looked at our mortgage balance, and agreed that paying down the loan would enable us to refinance and save enough in mortgage interest that the net effect was as if we were getting 8% on the money. At the same time as we got that new mortgage, the bank offered a HELOC, which I never needed to use. Did we somehow create high risk? Perhaps. Given that my wife and I were both still working, and had similar incomes, it seemed reasonable."
Another consideration that is not in the hard numbers.  Many people, myself included, find it hard to have the discipline to save for something that is so far off. The 401K plan at work has the benefit of pulling the money out before you see it, so you learn to live on what is left more easily. Also, depending on the type of 401K it attaches penalties to using the money early disincentive you to pull it out for minor emergencies.
Do you have other things you might want to spend that cash on in the near future? (Like a down-payment on a house?) Beyond having emergency cash, the only reason to keep a pile of cash around is because you might need it for another purchase. Unless you are going to have other expenses that will require higher-interest loans to cover them, there's no need to sit on a big pile of cash. As long as you are getting the full match on your 401(k), that's the free money that might be worth more than the interest you are paying on the loans. In any case, I suggest you aim for at least 10% into your 401(k) account moving forward in your life so that you can properly fund retirement. 15% would be even better. It doesn't sound like you would be losing anything by paying the student loans, and you could then use the money freed from your loan payments to pay down your car faster.
"I don't believe it makes a difference at the federal level -- if you file taxes jointly, gains, losses, and dividends appear on the joint tax account.  If you file separately, I assume the tax implications only appear on the owner's tax return.  Then the benefits might outweigh the costs, but only if you correctly predict market behavior and the behavior of your positions. For example, lets say you lose 30k in the market in one year, and your spouse makes 30k.  If you're filing jointly, the loss washes out the gain, and you have no net taxes on the investment.  If you're filing separately, you can claim 3k in loss (the remaining 27k in loss is banked to future tax years), but your spouse pays taxes on 30k in gain. Where things get more interesting is at the state level.  I live in a ""community property state,"" where it doesn't matter whether you have separate accounts or not.  If I use ""community money"" to purchase a stock and make a million bucks, that million bucks is shared by the two of us, whether the account is in my name our in our name.  income during the marriage is considered community property.  However property you bring into the marriage is not.  And inheritances are not community property -- until co-mingled. Not sure how it works in other states.  I grew up in what's called an ""equitable property state."""
"In your comment, you said: It just seems a little stupid to me to go and put away money for the explicit purpose of emergencies (presumably in a way that's somehow different from how you would normally save money). Seems better to go and treat the money as you would normally, and then pull whatever you need from the money that you had saved. The problem with that logic is that people save money for many different things.  You might save for a vacation, or a new refrigerator, or a new car, or a house, or your kids' college education.  If you ""pull whatever you need"" for such expenses, you may find that when a real emergency occurs, you don't have enough money.  The things you used it for may have been legitimate, reasonable expenses, but nonetheless you may later wish you had deferred those expenses until after you had built up a cushion. So the idea of an emergency fund is to designate certain money that is not to be used for ""whatever you need"", but specifically for unforeseen circumstances.  Of course there can be debate about what counts as an emergency, but the main point is to distinguish saving for planned future expenses from saving for unplanned future expenses. Note that this doesn't mean the money has to be in a separate account, or saved in any special ""way"".  It just means the money has to be considered by you as an emergency fund.  For some people, it may be psychologically useful to put the emergency fund in a separate account that they never withdraw from.  But even if you just have all your money in one savings account and you mentally tell yourself, ""I don't want to ever let the balance drop below $10,000, just so I have a safety cushion"" then you are effectively designating that $10,000 as an emergency fund."
A $10K withdrawal will cost $2500 in tax and $1000 penalty. Net $6500. Better to take the IRA, transfer it to the 401(k), and borrow 50%. Your $40K across the accounts will let you borrow $20K and keep the retirement savings going. Last - I respect the answers that say ""don't,"" they are actually the right answers. Mine only applies if you won't listen to them. In effect, you've asked where to buy rope, and I'm just letting you know where the store is. It's the banks who are happy to sell you the rope to hang yourself."
It's probably advantageous to stop depositing into a 401(k) when one is no longer receiving payroll deductions into them. Other than that, why would you want to give up the benefits? Remember, 401(k) is just the kind of account. Most offer a variety of investment options within them, and let you move money between those, so you can rebalance to suit your currently preferred risk/return tradeoffs without having to break them open. You might sometimes want to reduce your contribution for a while, if you have immediate cashflow needs elsewhere... but try to avoid doing that. Compound returns are a good thing, and the earlier the money goes in the more you get back from it.
"The prenup complicates things. The traditional vow of a marriage is ""What's mine is yours, what's yours is mine"". With such a traditional marriage it doesn't matter too much which partner's name something is in, in the event of a divorce the assets of the couple would be considered as a whole and then split. But you have a prenup which is presumably intended to change this traditional arrangement (and may or may not actually be enforceable). I think you are as such right to be wary. I think your only way forward long term is to amend the prenup and/or the legal status of the house to recognize it as a shared asset that you will both be contributing to and that it's value should be split in some way in the event of a divorce. In exchange you should probably be contributing some or all of the cash pile you have from selling your house to the common pot. Another loan may seem like a good option in the short term but in the long term the appreciation on a house is likely to be worth more than any interest on the loan (assuming you are using an interest rate comparable to commercial mortgage deals), plus any interest may well end up being taxable."
The numbers happen to work out to an average 10%, with the couple being in a marginal 15% bracket. A full 25% or $20,000 tax would be the break-even to the ""same bracket in/out"" analysis, so this produces a $12,000 benefit. This issue is often treated as if there were 2 points in time, the deposit, and the withdrawal. For most people, that may be the case. Keep in mind, current law allows a conversion to Roth any time in between. This gives an opportunity to make a deposit while in the 25% bracket, and convert in any year the marginal rate drops back to 15% for whatever reason. Last - I can't ignore the Social Security problem. Simply put, when half of your Social Security benefits plus other income exceed $25,000 ($32,000 if married filing joint) your benefits start to become taxable, until 85% of your benefits are fully taxed. This issue is worthy of multiple posts by itself. It's not a deal killer, just another point to consider. A very high income earner might be beyond these levels already, in which case the point is moot. A low income earner, not impacted at all. It's those who are in the range to navigate this that would benefit to take advantage of the scenario I presented above and spend down pre-tax accounts, while planning to use the Roths when Social Security starts. This should make it clear - it's not all or none. Those retiring with $2M in 100% pretax, or $1.5M 100% in Roth have both missed the chance to have the optimal mix."
It's not your money. What does your wife think of this?  You know, the withdrawal is subject to full tax at your marginal rate as well as a 10% penalty. That's quite a price to pay, don't do it.
If your employer offers a 401(k) match, definitely take advantage of it. It's free money, so take advantage of it!
Part of the difficulty in this sort of planning is that you are also betting on future tax rates and comparing them with current taxes.  If you are in a low tax bracket now, but expect to be in a higher one when you take the money out, it is better to pay the taxes now.  If you are in a high tax bracket now, but expect to be in a lower one when you retire/take the money out, then it is better to defer the taxes until then.  If you think that future sessions of Congress will decide to tax withdrawals from Roth accounts, then you should contribute to traditional accounts.  The problem is that you don't know with certainty what the future will bring. So you have to make educated guesses about what might happen, and what you can do now to protect yourself from it. Ideally, plan so that even if the bad things happen, you will be reasonably comfortable.
As long as you have a emergency fund, I'd stop 401k contributions immediately and use that money to fund school (as much as you can). Student loans are dangerous - they're very difficult to discharge in a bankruptcy, and eat into your savings for a long time. It may even be better to defer school for a year while the debt gets paid off and you can get an emergency fund built up.
I'm not going to speculate on the nature of your relationship with your wife, but the fact that you are worried about what would happen in the event of a divorce is a bit concerning.  Presumably you married her with the intent of staying together forever, so what's the big deal if you spend 50k upgrading the house you live in, assuming you won't get divorced? Now, if you really are worried about something happening in the future, you might want to seek legal advice about the content of the prenup.  I am guessing if the 400k were your assets before marriage, you have full claim to that amount in the event of a divorce*.  If you document the loan, or make some agreement, I would think you would have claim to at least some of the house's appreciation due to the renovations if they were made with your money*. *obligatgory IANAL