Lost Job Horror — Losing Your Job is Scary
Lost job horror is not the title of a horror movie although for those people who have just lost their job it could be. For people who lost their job a year ago andaare still unemployed it isn’t a movie, it is real life.
People being people they deal with lost job horror in different ways. Some have no savings or no appreciable work place retirement program so they are forced to rely on charity or spend every available penny they can scrape together for their existence.
Other people have work place retirement programs called 401Ks. When they lose their job they either borrow as much as they can from their 401K or they completely cash it out. Both events have consequences.
Whether you lose your job or decide to leave your employer, you will be required to pay off the loan in a lump sum should you have gone the loan route. If you don’t, you face the potential of the loan defaulting, which will result in a taxable event. This is like a lost job horror story.
If you have cashed it out, you will definitely face a taxable event. Depending on the amount, it could be substantial. For a person with no job devastating might be too mild of a word to describe the ensuing happenings.
People who have taken a loan against their 401K forego the tax-free compounding of the money they withdraw. The result could be a significantly smaller fund upon your retirement assuming you have left your 401K at least in partial existence
Interest, in certain circumstances is tax deductible. However, interest payments from a 401(k) loan are not tax deductible. Can you say ouch?
Double taxation is another lost job horror attachment for taking out a loan on your 401K. You will pay taxes twice on the amount you took out for a loan.
It works like this. Your 401k loan payments are deducted after taxes have been taken out of your paycheck. It is working as planned but since pre-tax money is usually used to fund a loan, the payments are put back into your 401(k) as pre-tax funds.
What could be wrong with this you ask? Simple, when you take the money out later, you will have to pay taxes on it again. That is called double taxation and could be a very real part of your lost job horror story should you borrow against your 401K.
Dozens of financial writers and gurus offer other suggestions. If you are caught up in the lost job horror story they advise you use savings and other types of loans first. They may be the best and most suitable alternatives you have at the time.
Jeopardize your retirement just for an immediate quick cash fix now may not be the wisest move. It may be the most convenient given your place in the lost job horror scenario but it may not be the wisest.
Their companion advice is to sit down and look at and evaluate all of your options. Don’t just jump like a frog. You may not land as softly as that frog in the pond. Since many of the people who are now in the lost job horror movie also live in houses that are underwater a loan sounds like the answer. It could be the worst answer.
Two other options that fly to mind are bankruptcy and walking away from the home. This article is not intended to cover bankruptcy. If you decide that route is your chosen path, please do your research carefully. You do not want to compound the lost job horror story you are in.
This particular river has far too many piranhas masquerading as lawyers. Their only motivation is to collect a huge fee from desperate people. That is this author’s opinion after watching a few of the players.
The second choice mentioned was walking away. You will not be able to walk away from your lost job horror story but you can walk away from your mortgage payment.
Sometimes it takes upwards to 12 or more months for a lender to complete the foreclosure process. This author has personally seen a homeowner stay in their house for 18 months before the lender began foreclosure.
Even if you only get 3 to 6 months, that is a healthy amount of money staying in your bank account. You can use this money to rent an apartment or another home during your last month in the foreclosure process. The lost job horror story could brighten a little bit if you keep your money in your pocket and use it for you and your family.
The lost job horror story has more twists and turns than this author covered in this article. However, the most common scenes were touched on. While the lost job horror story is not a pretty one, you can keep yourself from becoming financially wiped out if you formulate a plan and stick to it.
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