Help me decide

I voted to take the money for these reasons. I know if I had all that going on I would have a lot of stress and this money could help with your stress, pay things off, get the van fixed, pay for your tuition.  I say this ONLY if you do not rack up more debt after what you have is paid off. You are young and can make a plan after you are teaching to replace your retirement.  (will your child support decrees once you go back to work?) If this is the case do you have the option of taking some out to pay for the van and a some of the debt?

I'd rollover the amount to a 401k. I say this as a woman in my mid-50's who has not been very wise when it comes to retirement savings. Hubby had kids very young so when he and I married, I inherited a full house. We put off a lot of things - including retirement savings - hoping we'd be able to play a little "catch-up" when the kids were grown. Well, little did we imagine that we'd be raising our late-in-life DD and our financial plans didn't exactly work out like we planned.

Stacia, you know that life's plans don't work out exactly like planned. If they did, you'd still be married, right? You have NO safety net except the one you create for yourself. There will always be financial pressures - ALWAYS. The fact is, right now, you're making it. It might not be pretty. It might not be easy, but you're doing it. This retirement thing, you really need to do for yourself. It is very likely you'll never - ever - have this chunk of money available to you at one time again. Put it in a 401k and let it compound a little interest.

Then, after you've done the right thing, look at the money again to see if you want to withdraw any of it for any of the uses you have outlined. You will want to get tax advice on this subject, but I truly believe it is easier (with fewer penalties) to take money out of a 401k to use for non-retirement reasons than it is to use a distribution from a qualified retirement plan. I say this having already liquidated a small 401k during hubby's unemployment. He had a 401k that got "dirtied" because we rolled over the wrong kind of plan into it. It was a year before we realized what we had done and the money was mixed and the tax status was all messed up. It kept sitting there waiting for me to straighten it out and I kept avoiding it (stupid, I know, but we had a lot going on). When hubby got laid off, there was a period of time where you could take a distribution from a 401k (only a 401k - not any other kind of plan) and avoid paying any penalties if you had collected unemployment for X-months. Bingo! We liquidated that sucker so fast (as soon as hubby qualified). We received a check with the 10% tax removed but we paid no other penalties. I believe - and this is not confirmed - but under certain circumstances you might also be able to take a penalty-free distribution from a 401k for education expenses, too.

But again, get a tax advisor to guide you. Anyway, that's my 2-cents based on personal experience - if you're ever going to take a distribution, do it from a 401k, not some other plan, so roll that money into a 401k first and let it stew there for a little while before you decide to do anything else with it.
 

I voted to roll the money over.  20% is an awful lot of money.  Plus, if you are still going to school, it will probably affect any financial aid you might get (not sure of your situation there).  If you really need money, you could withdraw a small amount to help you in the short term--therefore only paying the penalty on the small amount, not the whole amount.

I would also ask your friends if they have a financial adviser they trust and then go talk to that person.  Find out how much they charge for their services and make them explain it to you (dh and I got a great deal where we paid a flat fee and not an annual one and she's done some terrific things with our money).

I see this everyday in the law office.

Personally, I would take the money, pay everything off and them put the rest in savings. But that is me, because I just can't stand the thought of being in debt. I was in debt for so long that sometimes, rice and beans were hard to come by.

And not that you're considering bankruptcy but ...

IF you were to claim bankruptcy, the 401k can't be touched (you can liquidate it later, though). However, you get no credit for having paid off your other debts earlier. Keep in mind, federally guaranteed student loans are NOT discharged by bankruptcy.

I voted for rolling it into a Roth.  However, isn't there usually a maximum you can contribute to a Roth each year?  I thought it was $5,000. I wouldn't take the 20% hit for the disbursement, even though I'm sure it's tempting.  It's not the best long-term solution.

Kim, roll-overs are different. She has a limit on NEW money she can contribute and that is also max'ed out by how much she earns. She can't contribute more than she earns, unless she is a spouse and she isn't. Stacia would have to research if divorced, non-working moms have an option to contribute new money - alimony might count.

Even if you're considering taking some of it, roll it ALL over into the 401k first. Like I said earlier, you may take less of a hit if you take it from the 401k.