401k advice needed

H

Hayden_Horn

1,000+ Posts
I have a pittance in the 401k from my work. My last day is may 31. what exactly should I do with this money? Like I said, it's not a lot, because I've been bad about upping my contributions, however, I'd like to know my options. We're only talking about 4k here.
 
just roll it over into a rollover ira account with your other investments. it will be kept separate and just leave it to juice. 40 years at 10% that 4K turns into almost 200K.

don't cash it out. you don't need the money, however much you think you do.
 
P/C, among others, knows this stuff better than I do right now, but I think with that small amount of money, you cannot keep it in the company plan, even if you wanted to. You want to avoid the penalties, so you need to contact HR or the administrator and determine what is required to roll over that money.

If it were me, at your age, I'd probably convert it to a Roth IRA.
 
Roth IRA definitely way to go.
Fidelity and American Funds would be your 2 best choices.
I believe you have 90 days from termination date to roll over, otherwise mostwill cash it out and mial you a check.
(The cashing out option knocks off like a 20% penalty)
But try and do within 30-60 days to be safe...
 
Roth IRA definitely way to go.
Fidelity and American Funds would be your 2 best choices.
I believe you have 90 days from termination date to roll over, otherwise mostwill cash it out and mail you a check.
(The cashing out option knocks off like a 20% penalty)
But try and do within 30-60 days to be safe...
 
also guys, you're going to really have to dumb it down for me.

I'm aware of what an IRA is - investment retirement account (right?). What is the difference between Roth and Vanguard? Also what percent of taxes would uncle sam rape me for if I were to actually cash it out?

Would it be to my benefit to cash it out to pay down debt?

Keep in mind that any tax penalty i incur for "income" will be offset by the fact that jsut over half my normal yearly income won't be coming due to my leaving the company, and then the US to work abroad.
 
Don't know the current law. But in my case, I left Schlumberger in 1986 with about $3,000 in my 401k. Kept it there, until about 2000 where I took it out as a rollover into a rollover IRA (about $7,000 by then) with Vanguard. Then converted ("recharacterize" is the term) from Traditional IRA to Roth.

"Roth" is a type of IRA where you pay the taxes up front, but never on when you collect it at retirement.

"Traditional" is a type of IRA where you deduct the contribution from you income so you don't pay taxes as you contribute.

Vanguard is a company, similar to Fidelity, which hosts a family of funds.

(If you recharacteerize the IRA from one type to another, you'll have to pay the taxes you missed the first time around.)

If you think $4k is a pittance, then give it to me.
wink.gif

Lots of folks don't save anything at all.
 
Take it out in cash, pay the 10% penalty and ordinary income tax on the distribution next year at tax time, and have some more pig roasts this year.
 
HH:

Vanguard is a mutual fund company with whom you contract to maintain your IRA.

Roth is the name of a type of IRA.

In the conventional IRA, contributions are tax-deductible (depending on income), investment proceeds are tax free, and income tax is due when withdrawn. There are penalties for withdrawing from an IRA prior to age 59 1/2.

In the case of a Roth, the contributions are NOT tax-deductible, but the money grows tax free, and is not taxable when withdrawn, after age 59 1/2.

In your case, you should be able to roll your 401(k) money into a Roth IRA. You will owe taxes on the money in the year of conversion. (Previous withholding is irrelevant.)

You also can go into a conventional IRA. If you do this on time, in what is called a trustee-to-trustee transfer, you will owe no tax. You tell the current administrator to whom to send the money, and they send it.

If you do not do this on time, you will get a check, minus 20 percent federal withholding. If you then want to open a conventional IRA, you have to make up the difference (the amount of withholding) yourself. Otherwise, you will owe a penalty for early withdrawal. You cannot get the withheld tax refunded until you file your tax return for next year.

HTH.
 
As an accountant/financial planner, I would really recommend against cashing it out right now. If you cash out, you'll get hit in two ways- early withdrawal penalty and income tax. The early withdrawal penalty is an automatic 10% - in your case, $400 off the top. Then you have the income tax - assuming a 25% rate, that's another $1000. Regardless of what type of debt you're trying to pay down, that's still a pretty big pill to swallow. If it were me, I'd put it into a rollover IRA. Practically, to do so, I would find a financial advisor you trust - a friend, someone your parents use, etc, and tell them what you're looking to do. Every company's 401k plan is a little different and, and an experienced advisor can help make things simpler for you. If you don't have someone like that you can go online and check out different mutual fund companies(Vanguard, Fidelity, American, etc) and open an account directly through them - rollover IRA being among the options they will offer. When you leave your company, they should send you a letter asking what you want to do with the account. Generally, you can either have them send you a check, or institute a trustee to trustee transfer, in which they would make the check out directly to the company where you would be opening the IRA.
 
I agree with 17. Uncle Sam gets most of his taxes one way or another. In the case of the 401K and the traditional IRA (rollover IRA) the money is pre-tax money. It was taken off the top of your salary before it was taxed. It is meant to be taxed when you pull the money out after you retire.

The Roth IRA is post-tax money. It is funded by money that you have left over after you paid your payroll taxes. If you fund the Roth, and pull money out at retirement, you pay no taxes, even on the money that you gained.

I would put the money into a traditional IRA for now. Maybe consider moving it into a different 401K once you find another job. The Roth is a good deal as a way to save money, but I would not start one with the money from your 401K because of the penalties and taxes that have already been mentioned.
 
i didn't think you could roll it over into a roth ira.

as the poster above said, don't cash it out, thats a huge hit, and you also have to think about the interest differential.

just from the previous posters numbers, say you come out with $2600 cash instead of the $4000 growing as an investment. you're growing $4k at 10% (avg) you're going to get $400. to have it make since to pay down debt, you would have to be paying off $2600 worth of debt that would generate $400 worth of interest, or something that was charging at 15.4%. your house, your car, your student loans arent' hitting that. your credit card maybe will hit that, but i still say that you will get more return over the life of the ira than you will save by paying off credit card debt (assuming you pay it all off sooner or later).

thats a little convoluted, but trust me, its worth more to you in a rollover account than it is cashed out

oh, and for general info, everyone should be putting the max amount they can into a roth every year, one of the best investment vehicles out there today
 
yeah, there has to be some kind of hit, because you're taking pretax dollars and putting them into an investment that works off posttax dollars. something's not right there
 
You CANNOT put it directly into a roth IRA. Open a rollover IRA (which is a type of traditional ira - meaning pre-tax contributions) wherever you want to invest the money. Unless you're adding to an existing traditional ira, i'd start one at fidelity, vanguard, or something like that. DO NOT TAKE POSESSION IN CHECK FORM OF YOUR 401K. You can have it directly rolled over to the institution of your choice, thus avoiding any chance of penalty. Finally, once you open the account and have received the funds, I would suggest converting it to a roth ira. Now you will pay taxes on what you have now (but no penalties), but you'd rather pay tax on the 4k now than tax on a much larger sum later.
 
so I opened an IRA rollover account at etrade and they told me I had to send a check in, what kind of penalties are there for liquidating your 401k into a check, for rolling it over? can etrade really transfer it without a check, or is etrade just whack?
 
You must log in or register to reply here.

Weekly Prediction Contest

* Predict HORNS-AGGIES *
Sat, Nov 30 • 6:30 PM on ABC

Recent Threads

Prediction Results Threads

2024 Schedules

Back
Top