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Old 04-15-2009, 12:42 PM
 
Location: NC
137 posts, read 638,240 times
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I received a letter from Fidelity regarding my 401K. Should I do the IRA rollover or take the cash? I will receive (after taxes) about $5,100. I got laid off about one month ago and would like to put the money towards college loans and my car loan. I keep thinking I am a long way from 62 why not worry about that when I am 30ish or 40ish? Any advice?

Will doing this help or hurt me next tax season (2009 taxes)?
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Old 04-15-2009, 01:09 PM
 
2,317 posts, read 4,853,114 times
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Quote:
Originally Posted by strawberry2 View Post
I received a letter from Fidelity regarding my 401K. Should I do the IRA rollover or take the cash? I will receive (after taxes) about $5,100. I got laid off about one month ago and would like to put the money towards college loans and my car loan. I keep thinking I am a long way from 62 why not worry about that when I am 30ish or 40ish? Any advice?

Will doing this help or hurt me next tax season (2009 taxes)?
Anytime you cash out a 401k it is bad when you do your taxes...you had the taxes taken out a head of time which is good..but you will also get hit with a 10% penalty....here is some info....

Cash Out 401k
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Old 04-15-2009, 05:30 PM
 
94,244 posts, read 91,915,045 times
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depending on your age you may have to pay a 10% penalty ...i think 55 is the age for 401k money unlike ira's which are 59-1/2


you will have taxes to pay too
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Old 04-15-2009, 06:02 PM
 
Location: Two Rivers, Wisconsin
13,214 posts, read 13,141,295 times
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Its 59 1/2 not 55 and I just don't think paying a penalty plus having to pay taxes, too not a good idea.
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Old 04-15-2009, 06:11 PM
 
94,244 posts, read 91,915,045 times
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nope , 55 when you leave a job and have a 401k.... 59-1/2 for other retirement plans..... yes i was quite surprised too when i learned it was so....
those who are vested in 401(k) plans can begin to access their savings without withdrawal penalties if the person who leaves work is age 55 or more during the year of separation. also depending on the plan, a participant may be able to draw funds without penalty at or after age 59 1/2 regardless of whether he or she has separated

there are other ways also to take the money out with no penalty being younger too .. it involves whats called a 72t election after irs rule 72t that allows it...its kind of tricky to do so i wont go into it but non the less just be aware you can get around the penalty at any age....my retirement plan will be to hit the 401k money first when we pull the plug at work for a nice early retirement. ill be 57-58 .. that way we can start to spend it down before those mandatory withdrawls at 70-1/2

Last edited by mathjak107; 04-15-2009 at 06:41 PM..
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Old 04-15-2009, 08:52 PM
 
2,317 posts, read 4,853,114 times
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Quote:
Originally Posted by mathjak107 View Post
nope , 55 when you leave a job and have a 401k.... 59-1/2 for other retirement plans..... yes i was quite surprised too when i learned it was so....
those who are vested in 401(k) plans can begin to access their savings without withdrawal penalties if the person who leaves work is age 55 or more during the year of separation. also depending on the plan, a participant may be able to draw funds without penalty at or after age 59 1/2 regardless of whether he or she has separated

there are other ways also to take the money out with no penalty being younger too .. it involves whats called a 72t election after irs rule 72t that allows it...its kind of tricky to do so i wont go into it but non the less just be aware you can get around the penalty at any age....my retirement plan will be to hit the 401k money first when we pull the plug at work for a nice early retirement. ill be 57-58 .. that way we can start to spend it down before those mandatory withdrawls at 70-1/2
O.k...now whats's the difference in the tax break if it is taken out at 591/2
how much are you taxed than....
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Old 04-15-2009, 09:21 PM
 
Location: Cook County
5,288 posts, read 6,834,960 times
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Its more about avoiding the penalty at 59.5 (or if you were an active employee after the age of 55). Make sure you are seeing the difference between withholding and penalities.

If you are in your 30s, and NEED the money, it wont kill you to cash it out. A 10% penalty on 6500 bucks isn't the end of the world. If you can avoid it though, you might as well.

With that amount of money, and in a youngish age, its really about personal need.

Standard taxation is 20%, assuming its all pre-tax money. That goes for after 59.5+ too, but you avoid the early-withdrawal penalty then.
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Old 04-15-2009, 09:24 PM
 
Location: Cook County
5,288 posts, read 6,834,960 times
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Just to clarify it, the 55 rule I believe is if you leave your job AFTER the age of 55. If you leave at 52, you still have to wait until 59.5 to avoid penalty for 401k...Right Mathjack?
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Old 04-15-2009, 11:04 PM
 
Location: Prescott Valley,az summer/east valley Az winter
2,059 posts, read 3,890,982 times
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If you are as young as I think you are you would be far ahead if you could get by without the money to rollover into a Roth IRA. After about another 20 years it'll add up to a tidy sum~ may even be the thing you need to be able to retire~ my vote is for " do not cash in"
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Old 04-16-2009, 02:42 AM
 
94,244 posts, read 91,915,045 times
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Quote:
Originally Posted by Orangeish View Post
Just to clarify it, the 55 rule I believe is if you leave your job AFTER the age of 55. If you leave at 52, you still have to wait until 59.5 to avoid penalty for 401k...Right Mathjack?


yes thats correct, but if your younger then 55 and leave the job you could roll it into an ira and then do a 72t election to avoid the penalties if you wanted to cash out.
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