Bauer76..

Thank you for sharing your story with us. In general it's not advisable to make a withdrawl or cash out your 401(k) because of tax penalties (you take a %hit on the withdrawl immediately and you have to claim the amout you receive as INCOME on your next years taxes).

However.. on a case by case basis.. You do what you have to do.

I once had a DMP myself and even though we were building the capital to settle with one of my creditors, they were taking steps to SUE me. I had no choice but to cash out my 401(k) and settle with the creditor immediately.

It will not be the end of the world to make use of your 401(k) (after all... it's YOUR MONEY!).

I recently helped someone who was complaining about their $3000.00 credit card, because the interest rate was so high (29.8% HOLY COW!).

But when talking to him.. he mentioned his savings account. When I asked him how much he had he said $10,000 at .2%. That's not 2%.. that's 0.2%.. or a FIFTH of 1%.

When he saw that he had the ability to pay off his card in one shot.. he promptly cut it up and did just that.

I don't know what your debts look like, or what your 401(k) is invested in or how much it's growing.. but I'd crunch some numbers and find out how much interest you are paying on debt vs. how much your 401(k) is growing.. it might be better in the long run to pay it all off SOONER rather than 2 years from now.

Just a thought..

Good luck!

So, clearly I no longer have any credit cards, as per the DMP, in addition to the DMP (interest is negligible, like less than 2%, as all my bills were current when I entered it), I have a consolidation loan which is a payment of 330/mo, and the principle is ~8k with 10.99% interest. I have ~26 months left on that, it will be paid off before I would enter school. Other than that, and my mortgage, which is lame and on a home that is 75% of the value of the loan, no other debt. No car loans at this time... I don't have any large savings accounts other than the 401k, and it goes up and down, just like everyone else's. It is in high risk funds since I am only 34... and currently there is ~12.5k in my company's stock from profit sharing, which I am 100% vested in, and then my 401k, which I think has somewhere around 25k in it. However, again, those numbers fluctuate.

Your person with 10k in savings and a 3k credit card is silly... If I had 10k in the bank (liquid, cash assets) I wouldn't have an 8k loan

Why can't you work? I know tons of people that work part-time while they go to school full-time.

Do you know someone who's worked while being in Med school? It's actually not even allowed, so the reason I can't work is Med school isn't really an appropriate place to be working and trying to go to school... For the record, that is stated in the first post, that I would either be in Med school or in a master's program that is a one-year intensive program that again, they do NOT recommend working while attending.

It looks like you have a pretty solid financial plan for yourselves.

So in two years time.. you'll be in school and you'll want to pay off the DMP immediately.. given the fact that you won't be able to make the payments and ending employment with your company.

Your choices are:
1) Refinance the home - I don't recommend that because of high closing costs and the fact that your home is now 75% of value of the loan. In fact.. they may not LET you refinance. To me this is not a good option.

2) Get income some other way - Hopefully in two years time your husband might be bringing in more income with his business. That way.. the bills are paid and you DON'T have to touch the 401(k) at all. You've been supporting the family for awhile.. now it's your turn to be supported. In my opinion this is the BEST option.

3) Use your 401(k) - for all the reasons that we've talked about. This is a GOOD option.. but #2 would be better.

I do have a suggestion about your 401(k) though.. just something to consider. If I knew that I "might" have to use my 401(k) in the next two years.. I would immediately go "Ultra Conservative" with my 401(k) allocations. This way..I'm preparing for the storm. The account will go UP and NOT DOWN. Over the LONG TERM, the rates won't out pace inflation, but in the SHORT TERM (2 years) it WILL grow to a sizable amount as you continue to save and your employee matches (hopefully they do that).

Finally.. I really do commend you on all the steps you've taken so far and planning far ahead is something that very few people do.

I can tell that you'll do great in school too!

Good Luck!

Thanks for your help! I hadn't thought about changing the allocations. Actually, I get profit sharing whether I contribute to my own account or not. Since I am fully vested, and trying to pay off debt, I have not been contributing my own money, but letting them contribute for me...

Actually I do know people who worked in Med school. Some people have to make money and they will do anything possible to get it done.

I would rather sacrifice my 401k than my future. Working in med school is a rather ridiculous idea, in addition to course time there is about 6 hours worth of studying each day.
C9, You are right, some people will do anything. However, that is not my situation, and I would beg money off my family before I'd risk my standing in school, or worse, fail out... I'd probably even file for bankruptcy and have my parents co-sign my loans before I'd work during med school... But again, like I said, most schools won't allow you to work, so if you do, you are probably hiding something from them, and that usually is bad...

In that case it seems like the 401(k) is the best option as long as you understand the fees and penalties involved. Which it seems like you do. I would say stash the income you will make over the next two years, but if your husbands company doesn't pick up, you may be left in a pickle.

In all truth, I would beg my family for money if I had to... I am not above grovelling if it's needed But hopefully it won't come to that It is so hard to say what two years will bring for his company... If I knew the future, I'd already be a millionaire....

Whose taking care of the kids?

No kids...