Early 401K Withdrawal - Talk Me Down Off the Ledge!

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Early 401K Withdrawal - Talk Me Down Off the Ledge!

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robertj

posts: 1383

Nov 11, 2008 1:13 PM ET Quote Report Abuse

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Tippie,

Although I don`t know the specifics of your situation, I`d like to offer the following comments:

1. If your comment on "can make up to x amount per year" is referring to your social security benefits - then my understanding is that "passive" income does not effect your benefits. Only income you earn.

2. Virtually every IRA custodian allows for you to place your money in CD`s or money market accounts. If yours doesn`t - it`s pretty easy to change to a different custodian.

3. There are many different scenarios in the way 401k`s get set up by the company. Since you are retired, you should be able to "roll" yours over to an IRA with a custodian that allows "investing " in CD`s (see above).

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

OfficeSuiteOnABudget

posts: 8

Nov 11, 2008 1:17 PM ET Quote Report Abuse

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I don`t see why you do not roll over your 401k into an IRA and invest it in the CDs you like. Most banks would be happy to do that with you.

The general rule of thumb is that an "employer sponsored" 401k is always restrictive in its investments. So when ever you leave your employer, the first act to do is to roll it over into an IRA, where you can invest your money in almost anything you want.

Good luck

-------------------------

Busy, providing tech support to non technical users of OpenOffice.org

OpenOffice is a free office productivity suite.

Tippie

posts: 3

Nov 11, 2008 1:24 PM ET Quote Report Abuse

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Hi, Thank you so much for information. I will check into that. Currently I am in mutual funds with Fidelity and the only way out of the fund is to sell the shares and then place the money in CD`s.
PS. Yes I was referring to SS income. But you also have to claim the interest income from the CD. It counts as income also. Uncle sam gets you coming and going.

Giftcompany

posts: 2

Nov 11, 2008 1:26 PM ET Quote Report Abuse

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Look at this savings tool at:

http://www.scamorbam.com/Bankonyourself.html

No comments?

-------------------------

Keep on truckin`!

Oivo

MrLiquidity

posts: 10

Nov 11, 2008 1:36 PM ET Quote Report Abuse

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DoGood,

Having control of your money as an entrepreneur is critical! While I am not sure what would happen if the government tried to get their greedy hands on our retirement money, you may want to use some alternatives from now on.

You made a couple of key points in your post: You want to be in control so that you can invest in your business. Many talented and successful entrepreneurs get caught up in the "tax advantages" of using retirement accounts to growth wealth for the future. I take a different approach.

If you believe in yourself as an entrepreneur and will do whatever it takes to make your business succeed, why not leave the majority of your money in places where you can use it in your business - without being taxed and penalized to death? In my humble opinion, entrepreneurs who enable themselves to thrive by focusing on financial liquidity stand a much better chance at success. After all, cash is king, and retirement account are the antithesis of liquidity. Besides, there are plenty of tax benefits for business owners too.

While I am not superstar writer, I did attempt to write an article about this. I posted it on ezinearticles. Feel free to check it out if you would like - it`s kind of a fresh approach to financial planning that is designed specifically for entrepreneurs. http://ezinearticles.com/?Entrepreneurs-Often-Make-These-3-Big-Financial-Blunders---Are-YOU-One-of-Them?&id=1615756

Good luck with your business - keep bootstrapping away, it will pay off!

-------------------------

Brad Fisher
aka Mr. Liquidity
President, Fisher Wealth Management, LLC
Founder, The Entrepreneur`s Dream Financial Plan

BizFinAdvisor

posts: 3

Nov 11, 2008 1:37 PM ET Quote Report Abuse

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Well I see alot of frustration, and probably has more to do with the fact that the traditional buy and hold strategy has led to losses, and like many investors have fell victim to the typical wall street saying---don`t panic it will come back, which they said during the last (tech) boom and subsequent correction until you lost most of your position.

I used to be one of those advisor`s and now I am able to protect my clients using hedging techniques and short term swing trades until there is a time when we can invest again.

I remember awhile back someone said they were going to start a coffee shop; this is when starbucks and others saturated the market--see this recession as a good thing for small business---companies are going to retract and close too many of their profit centers and thats when you step in as an entrepreneurs and hopefully come back in on the up curve.

If you need funding, the 401k or other accounts should be last and should never be used when you have fear of losing. You should consider a micro loan as a first source, but if you need to use your account then consider starting a solo 401k--this will enable you to borrow up to 50% and payback over 5 years-no tax or penalties.

I can take accounts starting at $25,000 and the admin for the 401k is $175 a year.-And I fully manage these accounts using ETFs and stocks--unfortunately mutual funds are no longer an option, and are meant for the little guy to be holding the bag while better investors capture gains and move on.

Let me know if this helps at all, Aaron

-------------------------

wealthoffice.com Building Wealth using technology with Individual Advice.

BizFinAdvisor

posts: 3

Nov 11, 2008 2:02 PM ET Quote Report Abuse

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As for the original post....here is one thing to remember--that almost always any detrimental changes often include grandfather provision; so if you had something before the law went into effect then it would still remain the same but you would not be allow to add to add--you would have to start a new account with the new rules.

I think one thing we all have to realize is that all these bailouts, and rebates and such have to come from somewhere, and since foreigner countries are not really buying our US treasury bonds anymore then the government will be limited to raising taxes or increasing the money supply which in turn can cause inflation on a grand scale.

The only thing we can do is work with what we got---currently taxes are relatively low, and most of Bush`s tax relief ends in 2010, after that expect taxes to be up again.

If you don`t want to pay that cancer in your retirement account that we call tax which can any amount in the future then consider the following:

First of all consult a financial advisor and your tax advisor before doing anything that may trigger a tax bill---

OK, in 2010 you will have the ability to convert your IRA`s (possibly 401k if done right) to a Roth IRA, and then you would be able to defer half the tax till 2011 and the other till 2012. I say bite the bullet and pay what I think is the lowest tax rate we may ever see again, and the Roth should be tax free going forward especially using the grandfather approach if our leaders of change decide to change the tax code to our detriment.

I hope this may help you as well---don`t give up---this is our country after all!!

-------------------------

wealthoffice.com Building Wealth using technology with Individual Advice.

jrlittle86

posts: 2

Nov 11, 2008 2:05 PM ET Quote Report Abuse

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Which administration is considering this? The incoming One? The administration who said 95% of us are going to get a tax decrease (or was it only those making under $250,000 - it kept changing so I can`t remember which it is)

So, if this is chatter ends up being true, then all 401K holders are in the top 5% or making more than $250K...

There are also the tax cuts that expire in 2010 for all of us who made about $42,000 or more. Has anybody heard if the New Administration has listed whether they will extend them or make them permanent?

zlchamp

posts: 70

Nov 11, 2008 2:38 PM ET Quote Report Abuse

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It is the incoming leaderships`s plan. It is true, and it effects ALL tax-deferred saving programs, not just the wealthy.

Here is how it works, they take you money...no matter how much is in there and pay you $600/month. Period.

So if you have $1m in your plan, you get $600/mo. if you have $10,000 in the plan you get $600/mo.

It`s called wealth redistribution and it is what 50%+ of the people of this country voted for...even though I suspect most did not know that this is what they were voting for.

It is really interesting to me that this siezure of private funds has been a documented part of the `new leadership` plan for over 2 years....yet when questions were raised about it pre-election during the campaign, it brought vitriolic spewage from the `change leaders` supporters.

And now, here it is, on the docket for serious congressional consideration and endorsed by the new leader`s economic advisory.

To be clear, in order to do it they are going to have to ammend the Constitution which currently prohibits seizure of your property and assets. This of course opens the avenue for them to size anything else they want too.

Not to `get political` here but the concern is a legitimate one.

I manage a sizable portfolio and had a substantial 401K. I willingly took the penalty because it is:

# 1 less than the loss government involvement would assure

# 2 less than the tax I would have had to pay on the money when I put it into the account originally.

That money has been earning interest for some number of years, so mathematically speaking it can be considered a 10% reduction in gain as opposed to a 10% loss.

I know it sound like wordsmithing but in truth the money you have invested in your 401 K has probably (in most cases) gained in aggregate more than 10% net value....so, you are in effect still getting a decent deal.

Not the deal you deserve by any regard. Make no mistake, they are taking your money and giving it away to others. That is probably not what you intended when you opened the 401K. So from that perspective, you would be getting a raw deal.

I took mine out of the 401K, ate the penalty and reinvested in a non tax deferred account.

I`ll just have to see what happens.

Steve

-------------------------

Steve Little
ThePerfectBizFinder
http://theperfectbizfinder.com/startup

I`m standing for all that is possible for you in life and business.

Videography

posts: 672

Nov 11, 2008 4:48 PM ET Quote Report Abuse

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I love the juxtaposition of the two highlighted articles on the SUN newsletter: "Talk me down off the ledge" and "Do it now".

#1 - You`ve been listening to too much Limbaugh or watching too much Faux News.

Bottom line, as long as you are employed and the employer has a 401K plan (qualified retirement plan), you are pretty much stuck with the 401K. But, as another poster said, the first thing you should do after leaving the company is to roll over the 401K into an IRA.

If you are self-employed, then what the heck are you doing with a 401K?

-------------------------

Steve Mann
Internet Videographer
MannMade Digital Video
My Email

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