Dipping into the No No!

[Chewie von Nubbins]

I am very close to pulling the trigger on making the decision to career change into becoming a Commercial Airline Pilot. But, first I need to sink a small fortune in order to get the proper training. I searched this forum and couldn't quite find the answer to a question that I am sure many of you experienced career changers might already know.

As stated in a previous post, I am yet another potential career changer pulling in a nice and comfy 80k/yr salary doing high-tech work. I have denied myself indulgent pleasures over the past 6 or 7 years by contributing the max into my 401k. I viewed it as a punishment for staying in the Navy until the 9 year mark and walking away with nothing counting towards retirement.

I have GI Bill benefits (24 months left) and am looking into a program like the Ari Ben VA program. That would leave me fitting a bill of roughly ~20k. I have read copious amounts of posts related to the evil Sally Mae and similar loan programs, and I don't believe that is the right way to go.

Here is the situation: Everyone and everything that you hear about people dipping into their 401k savings is STRONGLY frowned upon. But, since I will be leaving my employer, I have the ability to roll over 401k savings into an IRA. If I touch my 401k money directly, I will face the dreaded 10% "just because Uncle Sam likes to make these people cough(...like a physical)" tax and then the amount taken out goes directly into the yearly earnings category for income taxes.

It is my understanding that if someone were to withdraw money from an IRA to pay for education, this would in sense mitigate the 10% No No tax for touching retirement monies. But, the term education...this is what I am questioning. Since professional flight training is really considered a type of continuing education, would this be a qualifier for avoiding the 10% No No tax?

Any and all suggestions/comments are welcome. I am still in the fact finding stages here, and would like to see as many points of view as possible before dipping into the NO NO.

Thanks

[Minnesota_Flyer]

My view would be to avoid dipping into retirement savings at all costs. But then I also wouldn't take loans to pay for flight training anyway. Are you in a position where you can keep working while you start your training? That may be the best solution to your dilemma.

[SkyKing]

I will second the above sugestion. If you job permits, get your training while you maintain your other job. Instrument training can be done at evening times and a lot of stuff could be done over weekends or early mornings. I have worked with students training for an average of 3-4 times per week while working a full time position. It will take longer to get ratings, but you will be able to pay as you go without touching retiremnet savings or taking loans.

[Chewie von Nubbins]

Thanks for the info guys. My job offered a buyout to walk away, so they wouldn't have to lay off 5k people in one wack. They basically offered it to anyone that wanted the package. Package is 6 months full pay and benefits for walking away. I took the package. Last day of work will be 3/30. I will be able to take the full 6 months and crush myself by trying to get through things as efficient as possible.

Same prospective, or does this fact change it a bit?

[Minnesota_Flyer]

For 6 months pay, I'd walk too. Maybe get a new job and train on the side??

Otherwise, that's a tought choice. I'm of the school of thought that retirement savings doesn't get tapped for anything, both because of the 10% penalty but also the lost time/value of the money. But I suppose if the choice were that or take the loans, it would probably be cheaper to pay that 10% than to pay 10/20/30 years of interest (loans are bad, m'kay). Just realize that it's probably going to be 5+ years before you'll have any real opportunity to start retirement saving again. So it might make your retirement prospects a little hairy.

Anyway, if it's retirement $$ or loan, crunch the numbers on which will cost you less and go with that. (IOW, I have no idea.)

[SteveC]

Originally Posted by Minnesota_Flyer

For 6 months pay, I'd walk too. Maybe get a new job and train on the side??

I'm in agreement with MF that you should start another job immediately, and use the 6 month money as seed money to get started on your training on the side. Working your buns off with a full time job and flight training on the side is not much different than being gone from home to train, and you will end up in a much stronger financial position if you can get your start in this silly career without any debt load and with your retirement account still intact. Big sacrifices now pay off bigger down the road, primarily because of the power of compounding interest. Compound interest on your retirement will make a huge difference between money that is already in there and replacement money that you would need to put back 5 or 10 years down the road if you borrowed from it now. Also, compound interest on loans can be a killer if you have to go that route. You will have to make sacrifices one way or the other, so take the long view of the power of money over time.

[killbilly]

I considered doing the exact same thing you are, and rejected it, mostly because I need that retirement nest egg to grow as much as possible.

Take the six months pay, work and train on the side. If you can, break up that six months pay into CDs that will mature as you need the funds in the pay-as-you-go mode so that you will at least have some of that money working FOR you while you train.

[murl]

Originally Posted by killbilly

I considered doing the exact same thing you are, and rejected it, mostly because I need that retirement nest egg to grow as much as possible.

Take the six months pay, work and train on the side. If you can, break up that six months pay into CDs that will mature as you need the funds in the pay-as-you-go mode so that you will at least have some of that money working FOR you while you train.

Another alternative to CDs are the high interest savings, your money is not tied up any longer than you need it and they are paying on into the 5% range. Yeah, yeah, I know, a pilot giving financial advice

[SkyKing]

Great advice here. Six months pay should cover most of your training cost. Take a new job to support yourself while you train and maybe save some more. If you are an IT pro you should not have any problem finding a full or even a part time job while you train.

[killbilly]

Originally Posted by murl

Another alternative to CDs are the high interest savings, your money is not tied up any longer than you need it and they are paying on into the 5% range. Yeah, yeah, I know, a pilot giving financial advice

I thought about that - maybe I was projecting my own fallacies. If I've got "chunks" of the money tied up in the CDs, it forces me to be disciplined with rationing out the money so I don't incur the penalties.

You're right on the savings, though - I think over 6 months a savings account will probably pay more interest than a six-month CD would. Haven't checked rates lately.

[Chewie von Nubbins]

You guys are awesome! Exactly the feedback that I was looking for and needed. I did speak to a CPA about the tax thing. He basically said that this type of training/education will qualify for rules and stipulations set in tax code for avoiding the 10% "no touch tax." But, only if the money ($20k of the total 401k money) for training was rolled directly into an IRA, and then taken from there. Plus, you have to prove that you did indeed pay for the training with this money. In other words, proving that you didn't scam by taking the money and then got a loan for the training.

I ran the numbers on pulling around $20k out of the 401k and rolling it over into an IRA (in order to pay for the education and avoid the 10% "no touch" tax). What I found was that by pulling that $20k out would cost me approximately $17k in earned interest over a 5 year period. This was at an annual earning percentage of 13%. However, in looking at the bigger picture, that would really mean that I would be down about $37k over a 5 year period if I used the money in paying for the training.

So, after reading all of the POV's on the subject, here is what I have concluded. I am now looking for a 2nd shift IT job, which will generally work anywhere from 3-5pm through 10pm-12am. The pay from the job that I am walking away from will be able to pay for the full 40% that the VA will not cover for the training. I probably would only take a max of a 25% pay cut from what I am currently making (if any), because the majority of this type of work is through contracting and is generally at a higher pay rate and no benefits package (won't need benefits for 6 months and wife is a teacher..benefits good with her). Additionally, this also usually means that I will not have to take work home with me and would allow good focus on the flight studies.

I think this approach is definitely worth trying for a couple of months. If I can get a good full 4 days worth of hardcore flight training in per week, I figure I shouldn't be slowed down that much. I believe that the two months of trying to do both things at the same time will really allow me to gauge, exactly, how much I am being slowed down by not being able to only attend the training 100% of the time.

I will keep you guys updated on my progress (if interested). I talked with my neighbor today about the situation I am facing, and he laughed uncontrollably for a couple of minutes. He then caught his breath and said... What you are attempting to do is an adult version of what a kid would do by collecting coke bottles and cans to raise money to get the new bicycle so that you can run a paper route. ....so true.

Thanks for all of the advice,
Bryan

[SteveC]

Smart move in my opinion. Congratulations and enjoy the ride!

[Tiger815]

I thought this thread was going to be about scoring with a flight attendant!

[Cruise]

Originally Posted by Tiger815

I thought this thread was going to be about scoring with a flight attendant!

OMG......that's some funny stuff right there.

[Chewie von Nubbins]

Originally Posted by Tiger815

I thought this thread was going to be about scoring with a flight attendant!

lol. Excuse me pretty little lady, me thinks some no no secks would be nice!