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Old 08-23-2010, 09:42 AM
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Looking to withdraw the last like $4000 left in my 401k, held through prudential. Does anyone know how long it takes them to send you a check, or do they do direct deposit by any chance?
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Old 08-23-2010, 10:19 AM
Location: God's Gift to Mankind for flying anything
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Dunno what the *rules* are for Prudential, but you should really consult a tax consultant ... !!!

If you can afford to do it is steps, you pay way less tax !
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Old 08-23-2010, 12:11 PM
Status: "Baseball: Race for the pennant!" (set 28 days ago)
Location: Houston, TX
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You said "the last", implying you have done this before. Iwouldnt w/d from 401k unless i had too.
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Old 08-23-2010, 12:24 PM
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Originally Posted by Oildog View Post
You said "the last", implying you have done this before. Iwouldnt w/d from 401k unless i had too.
I haven't before. What I meant is that it's went nowhere but down since 2007.
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Old 08-23-2010, 12:32 PM
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Originally Posted by irman View Post
Dunno what the *rules* are for Prudential, but you should really consult a tax consultant ... !!!

If you can afford to do it is steps, you pay way less tax !
It's my understanding that you pay 10% penalty anyway, no matter how much you withdraw.

Then your withdrawal is placed on top of your earned income. So if you aren't pushed into another tax bracket, you won't pay any additional tax regardless of how much you withdraw and when.

Unless the OP is near the top of their tax bracket, an additional $4k in earned income won't be taxed any more than taking say two $2,000 withdrawals over 2 years, or four $1,000 withdrawals over 4 years.
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Old 08-24-2010, 09:22 AM
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A Quick Look at the Ways to Remove Money from a 401(k) Plan

The 401(k) plan is the most ubiquitous retirement account in the United States, and for good reason: Any money employees contribute is not counted for income tax purposes. Instead, it’s taxed — along with investment earnings — upon withdrawal.

So how and when can money come out of a 401(k) plan?

The first way is upon retirement, which is defined by the tax code as the contributor reaching age 59 . At that point and beyond, any money that comes out of a 401(k) plan is simply taxed as regular income.

The second way is through separation of employment. In this case, the contributor has four choices, which boil down to:

Leaving the money where it is
Rolling it over into a new employer’s plan
Rolling it into an Individual Retirement Account
Withdrawing it.
When done correctly, the first three options don’t result in any taxes or penalties. However, the fourth option DOES (unless the employee also happens to meet the conditions for retirement discussed above).

In short, money that comes out of a 401(k) plan before the contributor reaches age 59 results in both regular income taxes being due but ALSO a 10 percent early withdrawal penalty.

The third way is through what is known as a “hardship withdrawal.” While they’re not required to do so, most 401(k) plans allow contributors to remove money under certain circumstances — including medical expenses, the purchase of a principal residence, tuition and related educational costs, and funeral expenses.

Individual plans have some leeway in how they specifically define “hardship” and what particular events can trigger withdrawals, but the IRS does provide the following guidelines:

“For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee’s spouse or dependent.

“Under the provisions of the Pension Protection Act of 2006, the need of the employee also may include the need of the employee’s non-spouse, non-dependent beneficiary.

“A distribution is not considered necessary to satisfy an immediate and heavy financial need of an employee if the employee has other resources available to meet the need, including assets of the employee’s spouse and minor children. Whether other resources are available is determined based on facts and circumstances.”

In a few specific cases — such as death, permanent disability, or termination of service after age 55 — the IRS will not impose the 10 percent early penalty on these withdrawals. But in most other cases it will.

Worse, employees will also be required to pay ordinary income taxes on the amount removed.

And they will most likely be barred from contributing any new money to any employer retirement plan for at least the following six months!

The fourth way to remove money — temporarily — from a 401(k) is through a loan. Many plans will also allow participants to take out loans from their 401(k) accounts.

Generally, these loans have five-year terms — unless it’s for a primary residence — and carry fixed interest rates. Repayments must be made in regular installments, and everything goes back into the 401(k).

Obviously, a lot of Americans have hit rough patches lately … and other sources of credit remain in short demand … which is why hardship withdrawals are at an all-time high.

Borrowing from a retirement account now could leave you struggling down the line …

But with so many people nearing retirement already grossly underfunded, watching even more money flow out of their accounts is going to prove catastrophic down the line.

And since most of those withdrawals are getting hit with not just regular taxes but also the additional 10 percent penalty, we’re talking about a lot of nest egg money getting vaporized before it even goes toward their immediate needs!

Fidelity said 45 percent of the people who took a hardship loan last year took ANOTHER ONE this year!

What about all the 401(k) borrowing going on?

Well, on the surface it’s better to take a loan than an outright withdrawal because taxes and penalties aren’t assessed.

Still, there are a couple of things I find problematic:

#1. Unlike hardship withdrawals, there are no hard-and-fast rules on loans. So there’s no guarantee that this money is truly being borrowed for dire circumstances. People could simply be tapping their future retirements in the same way that they tapped their home equity a few years ago.

#2. While it’s true that this money should ultimately be repaid, and at least the interest will go back to into the retirement account, it essentially means that very little new money will be contributed. The end result will be a lower final balance and the loss of the very tax advantages that make 401(k)s attractive in the first place.

Look, if you’re absolutely stuck right now, then you’ve got to do what’s necessary. But in my opinion, you should avoid 401(k) hardship withdrawals at all costs … and think long and hard before you consider borrowing against your future retirement.

After all, the other typical sources of retirement income are looking shakier than they ever have before … and the folks tapping their 401(k)s may find themselves completely out of options in their golden years.
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Old 08-24-2010, 10:27 AM
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Most people have neglected(made initial choices,then never reallocated them to reflect changing realities) and grossly underfunded their retirement accounts for so long that retirement for most Americans,save for government workers and the savvy few,is the new "American Dream".
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Old 08-24-2010, 10:52 AM
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most 401k have poor selections as far as diversification. they only bet on one asset class and one economic outcome,prosperity...

usually the only growth vehicle is stock funds.. even the bond funds are corporate bond funds and they follow stocks lead more ofton then not.

2008 saw stocks and corporate bond funds fall while treasury bond funds and gold soared....

2 back to back recessions this decade left stocks dead in their tracks and most folks saw no growth in their 401 k for over 10 years now.

some fund families were going to add more proper diversification to their target funds that at least respond to other economic outcomes.
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