Hacker News Reader

Comment by davidcelis | Hacker News Reader

> McDonald's offers a 401k plan with up to 7% match. Even if you took the 10% early withdrawal penalty this is money in your pocket.

This woman is literally living paycheck to paycheck, and your suggestion is to... put money into a 401k? That simply isn't an option for people living in poverty like this.

> Gain knowledge, skills, and have a good work ethic and it is not that hard to get ahead in America.

This is a really out-of-touch perspective. One's ability to gain knowledge and skills is determined by the amount of free time they have when not working, and when you're only earning $9.50/hr, you have to spend a _lot_ of your time just earning enough to scrape by. It _is_ hard to get ahead in America when you're poor. Lifting oneself out of poverty is not easy to do here (or anywhere). If it were, we wouldn't have nearly 30% of our country's inhabitants living in or very near to poverty levels.

View on HN

>> I'm probably going to catch some flak, but I see some optimizations she can make.

> This woman is literally living paycheck to paycheck, and your suggestion is to... put money into a 401k? That simply isn't an option for people living in poverty like this.

Another optimization she could make is to save the money she spends on food for herself and her family. It won't be easy, but after a few years of not eating she could probably save up enough learn to code and pull herself up by her bootstraps. /s

I'm saying she puts it in and takes it out as soon as she can. This gives her more disposable income. The only issue I see is the time it takes her to make the first distribution, but then she shouldn't have any issues with lagging income if she budgets it properly.

It's not that out of touch. She doesn't have to work at McDonald's. I know there's opportunities out there that pay better and are in LCOL areas, but they have to be pursued.

I'm sorry, but I can't empathize when I read through an article and the only thing she is doing to better her situation is use the power of government to force someone to pay her more. I gave actionable advice that she herself has the power to act on to improve her situation.

The 401K administrators wouldn't allow this scheme of yours to be feasible. When you open a 401K account and start contributing to it, you can't just keep withdrawing from it at regular intervals like you suggest. At most you can make a one time loan against a balance that exists in your account if you want to keep using the account without closing it. You have to pay this loan amount back with interest--you're paying yourself back with interest, but still when you're in poverty paying anything back in excess of what you started out with is just another hardship.

If you opt to take a loan against your 401K, then you will be required to re-pay back the loaned amount through regular paycheck deductions until it is paid back, and you aren't permitted to take another loan until this first loan is repaid in full. Furthermore, a number of 401K plans that have employer matching typically have some form vesting requirements before those funds can be accessed; often a year or more.

Regardless, in this scheme withdrawing any amount (i.e. making a loan and not repaying that loan, or withdrawing funds and closing the account) will end up losing her money in the end given that McDonald's is only matching up to 7% while withdrawing early from the account incurs a mandatory 10% early withdrawal fee that 401K administrators are required to levy and report to the IRS.

You're right that YMMV, but it is an option with some providers. Even with the penalty you get more income.

How does putting in $100, getting a $7 match, and immediately pulling it out and paying a $10.70 penalty on the withdrawal leave her with more disposable income? (She avoids income tax on the $100, but then pays tax on the withdrawal so if they happen in the same year, that’s also a wash.)

I literally can’t see how this tactic helps her in any way.

It's a dollar for dollar match on up to 7% of pay. Let's say she makes $100. She puts in $7 and her employer also puts in $7. That's $14, and upon early withdraw she would pay $1.40 (penalty) + income tax (likely $0). She would come out with an additional $5.60.

Additional note: Only plan participants 59.5 or older are eligible to make in-service withdrawals (as are terminated employees, of course). Probably not a viable income augmentation plan for most.

https://www.sec.gov/Archives/edgar/data/63908/00011931251820...

Then I will concede that this option won't work in her case. Doesn't change that education is one of the best choices that she has.

Reply on news.ycombinator.com