Get That Loan Paid Off!

Steven has a 401k loan from his old job, and Dave tells him why he needs to get that taken care of immediately.

QUESTION: Steven borrowed $20,000 against his 401k, and is taking a new job. Should he take a loan out and pay it off the 401k loan, or let it cash him out? Dave is heavily in favor of the first option, or maybe something even better.

ANSWER: If you let it go, the IRS will consider it an early withdrawal, and it will cost you 10% plus your tax rate, so that will be about 40%. Get a loan and pay it off, or see if your new company will advance you that much as a signing bonus.