In a divorce, is it a good idea to cash in my 401K to pay off a student loan?

Answer by  Cecilia (2828)

No. It doesn't matter if you're going through a divorce or not. When the money is released from a 401K you will have to pay taxes on it as income. If you are under 59 1/2 you'll also have to pay a 10% penalty. Just pay on student loan.

Answer by  suze (333)

You should NEVER cash in your 401k for any reason unless you absolutely have to. The reason for this is that 401k contributions are paid pre-tax so if you cash it in before your retirement, you will pay roughly 40% in taxes. That is a lot of money to lose.

Answer by  bumblebee (313)

I would say before you decide to file for divorce that you should sit down with a lawyer to discuss this. It would be a good idea to pay off your student loan before the divorce is filed with the court.

Answer by  John13 (186)

It's seldom a good idea to cash in a 401(k). You will have to pay income taxes plus a ten percent tax penalty on the amount withdrawn if you are under age 59 and 1/2. However, if you are in a low income tax bracket, the tax hit won't be as severe as if you had a higher income.