How to handle existing 401(k) account when starting the Prime Directive Method

Submitted by Emanresu123p t3_zzfygv in personalfinance

I have been fully financially on my own for the first time after college for the last six months and despite using budgeting apps, I haven't managed to maintain an emergency fund. After finding this subreddit and reading through the prime directive ideology, I decided to follow through with it and start from square one.

As for the reason I am posting today: I currently have 401(k) contributions set up with my current job in order to max out the employer match. I know to put these contributions on hold and put the extra money towards my emergency fund until I get 1 month's of expenses saved and pay down all debts with interest higher than 10%. However, I was wondering what I should do with the funds I currently have sitting in my 401(k) account. I have a little over $1.6k in the account and am starting a new, higher-paying job on Monday. I was originally planning to rollover my account. I wanted to know if it would be smart to withdraw the funds from my 401(k) to put towards my emergency fund and speed that process up or if I should treat the account like it doesn't exist until I reach a point where I can safely contribute to the account again.

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Werewolfdad t1_j2bd0dx wrote

Withdrawing is rarely a good idea.

Just leave it Or roll it over

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BouncyEgg t1_j2bfagq wrote

> I wanted to know if it would be smart to withdraw the funds from my 401(k) to put towards my emergency fund and speed that process up

Unless you like lighting money on fire (~$160 for you), this is always going to be the wrong answer.

> or if I should treat the account like it doesn't exist until I reach a point where I can safely contribute to the account again.

Keep it invested in the 401k.

Or roll it over to new employer 401k.

Or roll it over to an IRA at a brokerage of your choice (ie Fidelity/Vanguard/Schwab).

Keep it within the confines of a Tax Advantaged Account (ie 401k/IRA).

Keep it invested.

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ahj3939 t1_j2btf92 wrote

Setup 401k with new employer and setup a contribution, and then roll over the old 401k.

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Emanresu123p OP t1_j2btlrx wrote

Would you think it’s smart to contribute to my new 401k while I’m still building my emergency fund? Shouldn’t I wait and get my emergency fund built asap before looking into my 401k?

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ahj3939 t1_j2buyso wrote

I don't think saving for an emergency fund or contributing to a 401k is a dumb idea.

If your focus is emergency fund you can contribute less to your 401k. My idea is you setup the plan and contributions and you can adjust the amount later as a smaller undertaking than having to get setup first.

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