Couple that makes $245K per year is struggling after husband quit his job and secretly cashed out his 401(k). What Ramit Sethi says they need to do

Still, they feel like they’re struggling financially and tend to run out of money at the end of the month, with no idea where it went.

A major stumbling block? Jamie has lost trust in Ryan after he made a series of major financial decisions without her. The largest of these occurred two years ago when Ryan, unhappy with his lucrative finance job, took what Sethi referred to as the “nuclear of nuclear options.”

Ryan abruptly quit his job and cashed out the 401(k) tied to it without consulting Jamie beforehand or telling her immediately afterward. He compounded this by quitting his next job without first informing her and then borrowing from his IRA to fund a classic car purchase.

Ryan says he “just hit a breaking point.” But now Jamie has a savings account she keeps separate from Ryan to protect their money. She’s resentful that she’s had to pay down his credit card debt, and the couple’s money talks often end in ”arguing, divorce threats and nothing ever changing,” Jamie told Sethi.

The couple wants to get their finances in order — and stop arguing — but to do so, Sethi says they’ll need to stop thinking of each other as individuals, adopt a shared vision and work as a team.

How emotions can lead to bad financial decisions

Jamie and Ryan’s situation demonstrates the effects that emotions, burnout and trust can play in derailing the financial plans of even those who are relatively well off. The couple didn’t explicitly state whether Ryan was suffering burnout at work, but he does display some of the behaviors of those who are affected by burnout.

Burnout or depression can lead to impulsive decisions, such as Ryan abruptly quitting his job and making several impulse purchases. It can also cause people to run up their credit cards, which Ryan was doing, and defer making responsible financial decisions, which he was also doing by offloading these responsibilities to Jamie.

As a result, the financial symptoms of burnout can be costly. For instance, Ryan gave up a lucrative job, which could seriously impact his lifetime earnings. He also cashed out his 401(k) early, which will result in higher taxes that year. It will also hurt his retirement savings since the tax-advantaged growth potential is lost for the money he withdrew.

For example, if he withdrew $10,000 that was earning 7%, then in 25 years he’d be missing out on a balance of around $54,000. Using the 4% withdrawal method, this would have provided about an extra $180 per month in retirement.

Most 401(k)s allow you to start making withdrawals without the 10% early withdrawal tax penalty at age 59 ½. Ryan is in his 30s and doesn’t satisfy any of the exemptions for early withdrawal from his 401(k), which means his withdrawal would be taxed as ordinary income in the year it was taken and subjected to a 10% early withdrawal penalty (2).

How to rebuild trust and manage money like a team

To get back on track, Jamie and Ryan will need to clearly communicate their needs and expectations to each other.

“When you’re hurt or taken for granted, you have to have patience, but you also have to voice your needs that you have certain expectations moving forward in the relationship,” said psychologist Ramone Ford, PhD, in a Cleveland Clinic blog post (3).