Pull out of 401K to save for Law School?

[Garageaholic]

So I've been contributing to my employer-matched 401K for the past 2 years and I have a good amount of cash in the account thus far. I'm 26, so I have plenty of time to continue to contribute.

I have been making plans for taking the LSAT and going to law school in 2 years, so i have plenty of time to save cash to pay for at least my first year of school in cash.

However, I figured that if I stopped (or at least slowed down) my contribution to my 401K, I can possibly save an additional $10k between now and when I begin school. This would prove to be very handy when going to school.


Do you think that it is worth it to slim down or temporarily eliminate my 401K contribution in lieu of saving for Law School?

[Dirtbleed]

We need another lawyer? Better to learn a skill.

[Garageaholic]

Well, not a litigation lawyer. A patent attorney. I already have an engineering degree.

[Pudmunkie]

That is a difficult one... With compounding interest you're talking about quite a bit of money in the end game (full contribution now as opposed to partial).

Ignoring all the minor nuances, lets just take a basic example:

5k in your 401k at the age of 25 will net $969,974.10

10k in 401k at the age of 25 will net $1,043,900.82

So 5k more in the front end comes up with ~73k in the end game. Of course the real numbers would/will be different depending on real life, but its a good illustrator.

Would I pull out of mine? Probably not, but I'm not in your shoes.

[Garageaholic]

Yeah, good point and thank's for the detailed answer. I don't think that it will matter too much. I don't plan on retiring at 59 1/2 anyway, so what's the big deal.

The issue is that if a sacrifice like that is made, I would need to follow through on everything, or I'm SOL on both!

[netcsk]

A buddy of mine is going to Alabama starting this year to pursue patent law, as well. He graduated this May with a mechanical engineering degree.

What engineering are you in?

[ZM Blue Devil]

Don't do it. Think of that money as money you don't have.

Hope all is well, haven't seen you around.

[xLibelle]

What engineering are you in?

srsly.

will you save me a buck if i send my patent work your way?

[Alkasquawlik]

No, don't do it.

[Red88]

I always understood a 401k plan to be seen as money you can't touch. You throw it all in there so that when you're old you have a lot more, not to take out at will.

[Hallen]

You can touch the money. You just have to pay the taxes on it that you didn't pay when you put it in. It's your money, not a government program after all. (unlike SS which is nothing more than a tax)

You need to sit down and do the time value of money calculations.

If this were the ONLY way you could pay for law school then you need to figure out a low-side estimate for your future earnings and see if it is bigger than the future value of your 401k.

What you should do is investigate student loans and then figure out what it will cost to pay them back, subtract that from your expected future earnings and then add in you current 401k plan earnings. Compare that to the first plan of using your 401k plan earnings. I think you will see that student loans are cheap enough that it would make more sense financially to use the student loans and keep your 401k.

[Alkasquawlik]

You can touch the money. You just have to pay the taxes on it that you didn't pay when you put it in. It's your money, not a government program after all. (unlike SS which is nothing more than a tax)

I think he was talking more along the lines that once the money is in your 401k, you should view it as money you can't touch, not that you literally cannot get the money if you need it. Basically put it in your mind that the money is no longer there and you cannot spend it.

[netcsk]

I think he was talking more along the lines that once the money is in your 401k, you should view it as money you can't touch, not that you literally cannot get the money if you need it. Basically put it in your mind that the money is no longer there and you cannot spend it.

Yeah, and you pay the taxes that you didn't pay PLUS a fee. You'll end up paying like 40% or some stupid shit to pull it out.

I agree that you should figure out if you really need to stop putting your money in before you stop putting it in.

[BobombETA]

The fee is pretty high to take it out, and that is after you pay the taxes. The only way to take it out is to roll it into an IRA. Then the same fees/taxes apply if you try to access any of it though.

Why not check out what kind of (if any) Stafford loans you might qualify for? I think the interest on a student loan would be less than the money you would spend/lose by pulling out of your 401k. Lost interest, fees, taxes, etc.

I don't know how you have your 401k set up, but mine has climbed more than 30% since my last statement. I'm going to let it sit a while before I mess with it. I have mine set up pretty aggressively though, mostly in foreign stock markets.

Good luck with whatever you do though man.

[Slangbox]

Guys he's not talking about pulling any money out of the 401k. He's talking about not contributing to it for 2 years. Unless I'm mistaken, this=/=the other.