I have about $10,000 in credit card dept that I really want to pay off. I am a 30 year old female and the plan only started a few years ago so I don’t have much in it. This is an emloyer sponsored plan, my employer puts 25% of what i make a year into my plan every jan. my question is Can I withdraw money to pay off a credit card dept? and would this be smart? I have a little over $8000 in credit card dept and just bought a house. i wrote to my pention comany and this is the response i got, i dont really understand it
Thank you for your recent e-mail to Vanguard(R). We appreciate the time
you have taken to contact us—and this opportunity to reply.
You can request a distribution from a profit-sharing plan account for the
* Required minimum distribution.
* Separation from service.
* In-service withdrawal (if allowed by your employer).
* Total or permanent disability.
* Hardship withdrawal (if allowed by your employer).
* Plan termination.
* Qualified Domestic Relations Order.
Please note that distributions from profit-sharing plans are subject to
ordinary income tax. If you take a distribution before you turn age 59-1/2,
you are subject to ordinary income tax and a possible 10% federal penalty
tax. The 10% penalty tax generally does not apply to distributions taken
for the following reasons:
* Medical expenses exceeding 7.5% of adjusted gross income.
* Health insurance premiums (after the employee has received at lease 12
consecutive weeks of unemployment compensation).
* Distributions taken in substantially equal periodic payments (SEPPs).
* Separation from service (if the employee reached age 55 or older during
the calendar year of retirement).
* Transfers or rollovers to another retirement account.
To take a distribution from a Vanguard(R) profit-sharing plan, please
complete and have your plan administrator sign the Qualified Retirement
Plan Single Distribution Request form. To access the form, go to
Vanguard must withhold a minimum of 20% from your distribution for federal
income tax unless the distribution represents a required minimum
distribution or hardship withdrawal distribution, in which case the
withholding is reduced to 10%, but may also be waived. Depending on your
situation, you also may be able to withhold a portion for state taxes. For
more information, refer to the Special Tax Notice Regarding Plan Payments,
which accompanies the form.
Vanguard can’t answer the most important question, are the contributions that have been made "fully vested".
I would bet that you have to be with your company 10 or more years for the contributions to be considered "fully vested".
Also, with the dramatic downturn in the stock market, your plan isn’t worth much now anyway.
You need to ask your employer (probably HR) two questions:
1. Is my plan fully vested (meaning the money is actually yours) and
2. Can I take a loan against the plan.
The last thing you want to do is take an early withdrawal from retirement. By the time you pay the penalty-10% to the IRS- and the state & federal income taxes, you won’t be left with much at all.
For $8k, maybe you could just take a second job and take every dime of that paycheck and start paying the credit companies with it. Start with the highest interest rate first.
Good luck. Just know that $8,000 is nothing, there are lots of people that owe tons more.