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primoa1970 | Question concerning my 401k money? |
These are tough times for just about everyone. I know that many of you who answer this question will try to convince me not to do this but......I do have a few questions:
1) I have about $16,000 in my 401k as of now. It was $20,000 as of 2 months ago. I have not contributed to it in about 4 years. If I were to cash out early on this, after taxes & penalties.....about how much money would I walk away with in pocket?
2) Sometimes desperate times call for desperate measures. What could be so bad about pulling my hard-earned money out of this unstable market (401k plan) and putting this money into an interest-bearing savings account?
I appreciate your insight on this.
-Primo |
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m w
 |
Excellent question, and one that many are asking themselves right now.
1) You can count on roughly a 40% haircut on your money (your tax bracket + 10% penalty), so you'd walk with something close to $9,600. Incidentally, something else you need to understand is you walk away from having anything in retirement. And the government walks away with 40% of your money - 10% more than it should have ever had to begin with. It doesn't matter to me one whit if you do this, but know the facts before you jump in. They're not pretty.
2) Again, It's not my money, and I don't care either way, but there is a persuasive case against doing this. You frame this solution as a "desperate measure." I suppose the logic you're using is the entire 401(k) will soon be worthless, and you see yourself as "saving" the balance of your investment. OK.
Other random points here:
I assume you're relatively young and have a long horizon until retirement, and that you're down YTD somewhere between -40 to -50%, depending on investment strategy.
You need to look at the 10% penalty as even more losses you're taking. Your logic evidently assumes that companies like Wal-Mart, or Johnson & Johnson are worthless. Zero. Fine, but I'm just not that bearish.
When you pull from the 401(k) and head into a money market account, you've locked-in your loss. When the market recovers, you're out. You also need to view the small return you get on MM accounts (maybe 3.5% or so) in light of income taxes. So 1-28% tax rate * 3.5% = 2.52% return net of tax. On your $9,600, that's $242 a year. Not a whole lot of money.
You describe the market as "unstable," as if on the other hand there's such a thing as a "stable" market. The market is always unstable, and volatility is always present. If that fact bothers you this much, you should have never been in stocks in the first place. Make sure you reevaluate your risk tolerance going forward.
The only way I'd do this would be in order to avoid foreclosure. That's it. If you're having "tough times" as you say, I would trim your budget and lifestyle to the bone, and get your income up, and avoid this very costly knee-jerk reaction. Very best of luck with this. |
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Steve D
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1) You will probably walk away with about $10 - 11,000 assuming you haven't lost any equity since last you looked. There is a 10% early withdrawal penalty and then you pay taxes, since the money was contributed pre-tax.
2) While a savings account is safe, you pay for the lack of risk by getting a substantially lower interest rate. You will be hard pressed to get more than 1 - 1.5% in interest, meaning you will end up losing value anyway, since inflation will outpace earnings on the account and the money will buy substantially less when you do go to retire.If you have 10 years or more to retirement, you can be almost assured that the market will bounce back at some point during that time and while we may not see the go-go days of the 90's, the market should appreciate closer to its historic norm of 8% return annually. |
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PureOrLady
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if you roll it over into a retirement fund account (cd etc- and yes the banks can do that) then you would cash out 16,000.00. If you were to just cash out... 20% federal 10 % state. plus an early cash out penalty plus the entire amount becoming income. probably about 9,000.00? |
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La Vie Boheme
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10% penalty for early withdrawal
Around 30% will be taxed as income.
I would leave it unless you really need some money. There is always a 401K loan option. |
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Ruby
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As answered above, with penalties you will lose about 40% if you cash it in early. Have you checked to see whether there is a fixed income investment within your 401K options? That way, if you are worried about losing more in a down market, you could just switch your money into something more conservative. Regarding rolling over to a CD, if you are still working where you have the 401K, I don't believe that's an option for you. |
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Einaj
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Call the broker for your 401k. Ask them about penalty charges and taxes. They should give you this information without a problem or charge. Don't worry, it won't alarm them much, although they will try to convince you to keep your money with them. If it is hardship related, tell them, there are special circumstances for hardship withdrawals. Also, get any taxes and penalties taken out when you get your money or the penalties will eat you alive come tax time. Maybe you could transfer the money to something safer and avoid the penalties altogether. |
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Hogie
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I used to be securities licensed.
If you pull it out, you will lose about half of it.
The market will turn around, and it will gain back what it lost, and then some. You only lose if you take it out now... you are "selling low" which is the opposite of the right thing to do. You want to "sell high" at your retirement age when it will be much greater than it is now. You may only lose half of it now pulling it out, but you are losing much, much more in that it will not accrue the interest it otherwise will have if you leave it in.
Interest bearing savings accounts such as what banks provide are a "guaranteed loss" seeing as they never even keep up with inflation.
Don't touch it. Your 401k is for the long haul. If anything, you should go back to contributing to it.
. |
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src50
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What could be so bad is that you will lose 40% +/- to penalty and taxes. |
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jwbulldogs
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I can't tell you how much you will lose, but you will lose a lot because of the early withdrawal penalties and it becomes taxable income. Therefore you lose twice.
But you could talk with your broker and find how and what your money is invested in. You then could make a motion to control your own portfolio. This does require some knowledge on how to invest your money. You need to have a good entry and exit strategy. You also need to know how to minimize your loss by place stops on you investments.
Unfortunately, many of those 401 plans are invested in mutual funds. Most people don't check it until they retire. Mutual fund go up and down and usually earn small amounts of money of time. But you can minimize the losses if you control which stocks you purchase.
The market is guaranteed to do one of 2 things. It is going to go up or it is going to go down. Don't try to reinvent the wheel. You need to find what has made others successful in the market and follow their plan. Do not ever stray from the plan. There are books by George Fontanel or Warren Buffet who have bee very good in the market. There are also online resources that will give you good entry and exit strategies. You broker is not really there to make you money. They are their to make themselves money. They make money on you if you win or lose. Please don't just take your money and invest it right away. You should do some paper trading first. In other words trade without using money (monopoly money). When you can successfully make money an high percentage of the time for a month then you are ready to invest real money.
Edit:
Judy is almost right. Just almost. Almost is only good in horseshoes and hand grenades. You should invest it, but I would use her strategy as she is losing 10%. You don't invest in what is losing the least. Your investment should follow the market trend. Find out who is in control ( the Bears or the Bulls). If you a bearish trader you follow what the heavy investor are trading. Believe me it are reasons why to dump boat loads of money. They know something the normal investors don't.
Learn how to read the charts. Know where the resistance is ( the floor and the ceiling). |
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Judy
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I just started investing in this market. Granted, I lost 10% yesterday, but we have to be at the lows of all lows.
If you have about 16K you will be hit with penalties and taxes at the end of the year. Expect to pay 40% in taxes and fees.
If you take your money out you would be losing out on the company match. You should have watched your money a year ago, not now. Now is the time to make a fortune. Just move it to a save investment for the next 3 months. Look at what has lost the least, and invest in it.
And thank your lucky stars you only lost 20%. Most people have lost 40% so far. Not including yesterday. |
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