So here’s my situation. I work full-time and have a 401k at my old employer and a 401k at my current place. I haven’t, of course, taken any money out of them and I just turned 60. I’ll likely be working for quite awhile longer (i like it).
I’ve run into a family situation which is why I’m trying to get an answer to this question discreetly. I have a brother (in his 50s) who has made bad life choices…and not just once, dear friends, but pretty much a lifetime of them…my siblings and I have paid for rehab twice and I won’t exhaust you guys with all of the stories…if you have a brother like this, you know. The last 5 years, he’s actually done much better…he has a steady if low-paying job, a good place to live, and the latest AA meetings have really worked for him. But the family is over him.
He has run into unexpected medical expenses…they have overwhelmed him and it even threatens his living situation (and future medical care)…it would be about $6000 to pay them off in full and what I would like to do is withdraw $6000 from my 401k and pay his doctors directly…I would sleep better at night and he will stay on a good path. Can I just take out the money, send it to the medical offices, and not have it show up anywhere? (taxes, etc)…you can guess where i’m going with this…i don’t want to talk it over with my husband or my siblings…i just want to do this…it’s my money from decades ago and I can afford it…and even mentioning my brother’s name causes drama.
A 401k withdrawal will be taxed, no matter your age, because your contributions were not yet taxed. Does your current employer have a loan option for your 401k? This is the only way to withdraw a lump sum like that without being taxed on it. However, you would then have to pay the money back to yourself weekly/biweekly, etc. (at a very low interest rate). You may even be able to model a loan (but not go through with it) online if you log in to your account.
I know that a loan is not what you had asked about but wanted to provide that option in case it could help. Otherwise, you are looking at a tax event on a withdrawal. Good luck to you, and to your brother.
The CARES act allowed for withdrawals from IRAs without penalty in 2020, I am not sure if this included 401k plans as I honestly didn’t pay that much attention, but it is also now 2021 and I’m not sure if that part was extended. I would consult with your tax advisor.
One note however, even if it is a tax free and penalty event as a result of the Cares act, you would still get some sort of 1099-R showing it as a non-taxable event so if you and your husband file taxes together, he would see it and then you would have to account for it anyway. So, be careful about “hiding” the fact that you want to do this without telling anyone. Best advice is to tell your husband that you want to take it out, it’s your money, blah blah so that he doesn’t find out in some other manner a year from now.
If you can take the loan from your current employment 401k, then you may be able to lower your contribution and assign the difference as payments towards the loan. This is the closest to your original request but still leaves a trail in your paychecks and 401k statements.
401k withdrawals are always taxed, unless you have a Roth 401k. Since you’re over 60 you’ll at least avoid a withdrawal penalty. If you and your H do your taxes together, then he’ll see the 401k withdrawal as declared income.
The other option is a loan as mentioned above, which you would have to pay back.
I don’t know your specific circumstances, but 6k does’t seem like a huge amount if you’ve been investing in your 401k for decades. It might be worth having that conversation with your spouse up front if it’s not a decision that’s going to impact your own circumstances (e.g. could you easily spend an additional 6k on your own family if a similar emergency pops up).
I am going to presume you have tried to negotiate with the medical provider on his behalf to potentially reduce the bill ? What about a payment plan from you to the medical provider - I know that drags it out, but could be better vs 401k withdrawal.
Something I should’ve added to my first comment, is that it’s your money that you’ve earned, and you should be able to spend it how you want it. As someone else mentioned, you’re old enough to withdraw it without penalty. Even if you had to pay taxes on it, if you’re in the max tax bracket, it’s not like you’re withdrawing a million dollars. You can often take it out and have taxes withdrawn at the same time, so gross it up to 8k, have 2k taken in taxes, and you’re somewhat covered on the taxes. But as a woman who as worked for a long time, and the market has done fantastic for many years, you should have seen tremendous growth in that account, it is YOUR money. Not your husband or other relatives, and at the end of the day, taking $6k out now is not going to make a big dent down the road for the rest of your life.
Also, as another poster mentioned and you should consider, definitely try to roll it into a Roth 401k. Then you can take any of the money tax free later, and the earnings will grow tax free. There are also many other benefits, but other considerations you need to look at.
Many members of my family have needed to/opted to bail out other family members financially over the years. I have seen every workaround and just want to encourage the OP to be transparent with the spouse. This stuff can never be kept secret forever unless you and spouse file separately and have no access at all to each other’s financial records. And it always seems worse to find out after the fact than upfront. And in most cases- a joint decision is better for both the marriage and the ultimate financial picture than a decision made unilaterally.
I was at a holiday meal where one sibling “presented” a check to another as a payback for a loan that the lender’s spouse had not known about. So the ostensible “see, I’m responsible, I pay back my debts and I love you for trusting me” message got lost in the spousal “thanks for telling me- two years later- enjoy the mashed potatoes while I storm out” drama.
And agree that you might be able to negotiate a greatly reduced payback schedule with the medical providers-- again, if you are candid with them. They might be less likely to send the bills over to collections when they realize that someone who is NOT legally obligated to pay is taking on the responsibility- $100 a month, or whatever you can arrange.
Kudos to you for your support of family members who need it most! I’d hate to see your wonderful intention get caught up in marital drama…
Some excellent suggestions here. The options of 1) negotiating the bill down 2) establishing a payment plan that spreads out the expenses (having a solid plan helps lesson feelings of helplessness) 3) diverting, for a time, some current earnings into the payment plan - all combine for what appears to be a better option than withdrawing 401k funds.
It’s important to help out without negatively impacting your own savings too much. What happens if you are in a similar problem years from now? Providing assistance should be on terms that don’t put you at risk. You are a good sibling for trying to help out. Many families have these situations.
Like others noted, I think it would be next to impossible to take a withdrawal without your spouse finding out. I’d personally never do that as I would be ticked if my spouse made financial decisions for their family without me.
There was an option for folks to take out money in 2020 (I didn’t take note of the details) if they had some Covid related issue. I don’t know what they payback terms were either. But I am sure they would send some paperwork.
I’d personally opt to make the payments directly to the doctor. Doctor’s often have clients who need to make long term payments. As long as regular payments are being made, it should be in order. Have you also checked for any programs to help folks like your brother with medical bills? There might be some way to get assistance that way as well.
@blossom The check story sound crazy. I would personally be very offended if anyone pulled that kind of drama at my house. There are some family members ( in every family) for whom there is never enough money. It’s usually a lifetime of bad decisions built up into a giant jenga tower they expect someone else to patch.
hey, OP here…I just returned from a (very cold!!) hike.
I truly appreciate all of these insights…a few more details:
This specific 401K is from a job from 12 years old and i haven’t deposited a single dollar there in 12 years. I kept it there because i worked at a f500 company and their program is really well-run…without me adding a dollar, it has grown to $400k.
I hear what everybody is saying about maybe taking a loan, working with the medical offices to make payments, etc but one thing when you have a troubled family member for multiple decades…you just really don’t want to think about this person more than you have to…this is a side conversation but it wasn’t until my brother went through his second expensive rehab stint that i began to understand that rehab’s biggest benefits are for the non-addicts…you don’t have to worry about that person for 30 days…and that’s worth any amount of money. Anyway, I want to pay it and be done with it.
I think i overstated the tax part of it…i’m cool with my spouse knowing about it months from now but right now I just don’t want it to be a group decision. He will 100% be against it (beyond 100%) and right now, I simply want to sidestep this conversation…i have to do what i believe to be the right thing to do.
talk to me a bit more about the taxes…i’m just taxed on the $6k and am not triggering a payment on the whole amount, am I?
There are two questions posed here. The first one is, can you take money out of your 401k and that answer is absolutely you can without penalty because you are over 59 1/2. But you are taxed on any money you take out at the tax bracket that you are current at. So you can take out the $6000 plus enough money to cover your taxes, they send you a check.
This leads to the second question about doing it without your spouse finding out. That answer is much more problematic. Because at the beginning of 2022, the 401k is going to send you a statement of the withdrawal and you will have to add that to income. That is harder to hide from the husband. And that you can’t get away from.
To come up with $6000, you can take a loan from your current 401k. I don’t understand why people are so against this option. @SouthernHope, I’m going to assume that she has enough in her retirement accounts at this point to retire comfortably. $6000 less than a decade from retirement is not going to derail retirement. You borrow the money, you pay back the amount out of your paycheck and the interest you pay, you pay back to yourself. Yes, that money won’t be available for investment but it’s again, $6000! This option you won’t need any knowledge from your spouse unless they are checking you paycheck closely. You can borrow the $6000 for say 5 years or whatever you think is your retirement date.
I mean, $6000 you can pay that amount on a credit card and pay it back over time. There are cards out there, Bank of America is one that the first 2 years you pay no interest.
So to me, the $6000 is not the issue, plenty of options for that. It’s the not letting your spouse find out, which is harder to do. And the answer is yours to decide.
My sympathies for the situation with your brother, I get why his continued sobriety is so important to you. Good luck
Assuming that the money is coming out of what is expected to be shared household money, would going behind his back to use it and revealing it later lead to even more damage to your relationship with him?
However, if you are doing what some couples do and allocating each spouse a private pot of no-questions-asked money in addition to the shared pot of money for joint household expenses, then you could pay it out of your private no-questions-asked money.
When you take a loan from your 401k, you get money (yours) upfront and then need to repay it. You are effectively substituting an investment in xyz for an investment in a loan to yourself. There are no penalties provided you pay it all back. Employees use these for all kinds of things, from down-payments on homes to unexpected expenses. Since you plan to keep working, this shouldn’t be problematic. I believe you could also do this with disretion. I don’t know what the mechanics are if you are doing this with a 401K where you are no longer employed as it’s most common to process loan repayments out of your pay (like a contribution. ) You might want to explore this option at your current employer.
There is also a "hardship withdrawal ". I have helped employees process these for medical expenses but I don’t know if they extend to medical expenses for a relative. I believe they are taxed but without penalties.
Most 401K plans have good information on their websites and pretty knowledgeable client service representatives. I would reach out directly to them. They can point you to the documentation as well so you can see if other signatures are needed. My recollection is that they are not.
I don’t know…I hear you…here’s the thing, we’re in our 25th year (my husband, my siblings, and my sibling’s partners) of first worrying about my brother and then getting angry and then worrying again and so forth…the last 5 years have really been the best he’d had…but my husband (and a couple of other family members) are angry about the tens of thousands of dollars spent over the decades…i’ve had angry years as well…and the pandemic has just heightened the emotions…ugh…anyway, I truly thank all of you and I’m thinking over my options overnight and may come back with more advice, if okay!
Anyway, I want to pay it and be done with it.
