Cash out a small 401k?

Question

Hello all,

I am wondering what to do with my very small 401k:

I worked for a soul-sucking corporation for roughly 7 months, but after leaving to be a firefighter I am left with a 401k with roughly $1500 in it.  My wife and I are saving for our first multi-family, and I am wondering since it is such a small amount if it would make more sense to cash out and put the money towards that investment, or keep it in a normal 401k account?

Thanks!

Chase Cline · Answer

@Dan Martin cash it out. This goes against every personal finance blog you will ever read, but do it. You are aware that banks take 401ks and loan them out to get higher interest rates while the 401k owners sit there earning the measly 5% - 8% average (I lost 7% this year in mine and plan on cashing it out in the next few months to buy an additional rental). If the banks are doing it why can't you? If your amount will go into an investment that will earn you a higher return than your 401k it's a no brainer even with the penalty. There's a reason that these massive banks and financial "experts" tell you to leave the money in: because it makes them more money!

Ashish Acharya · Answer

@Dan Martin , If 1,500 is not big enough to have your investment going, you should just roll it over to new 401k or another plan that your new employer offers.  Why pay taxes and penalty on this money now?

Brandon H. · Answer

I think there are very few circumstances where it's worth cashing out a retirement account and paying the penalties.  In my view, retirement should always be separate from your real estate investing activities.  Then, if something goes terribly wrong with your real estate portfolio, you at least know you're retirement is taken care of.

My advice:  roll the old 401k over to Vanguard and buy the ETF VTI (total market index) and then promptly forget about it until you're old enough to withdraw from the account without penalty.

Cash out a small 401k?

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