I have 6 years on my current job and will be relocating out of state for another job. They have 20 years and out. With my current job I would have to do 19 years before I can retire. Either way would place me at 57 yoa. I want to use the money to cover debt and set up in my new state.
2006-11-07 03:27:48 · 5 answers · asked by rickerticker 1 in Business & Finance ➔ Personal Finance
You can take the money out. But, you will pay a penalty since you are not retiring or rolling it over to another qualifying account. Plus, you will pay tax on it. Roughly, you will lose 25-30%. I know. I was in the same situation last year. And, that's still what I did.
2006-11-07 03:31:56 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Very bad choice to use it for current debts, etc.
If you take the money out you will pay full income tax at your current income rate, plus 10 - 20% beyond that because you are under 59.5 years old. You are looking at losing as much as 45% of what you have in the 401k to the IRS.
Most likely you will NEVER recoup what you have saved thus far if you do that, and you'll have to start all over again trying to put away money for your retirement. You need to look at the numbers realistically. Lets say you have $500,000 put away at retirement. Typically, the experts say you can take 4-5% of it per year as income and maintain your account. That means that you'll be able to draw off about $25,000 a year from your 401K and supplement that with Social Security once you hit the required minimum age. Do the math and see what the living expenses are projected as 5, 10, 20 years down the road. Believe me $25K + Soc Security is going to be a fairly difficult budget to live on once you retire 20 years from now. And, BTW, 20 years isn't a long time to save up for your future retirement.
Your best financial decision is to get a good financial advisor in your new location and then contact your current employer and have it rolled over once you move to your new location.
Your best financial decision is to try to deal with the debt issues you have and the cost of relocating. If you get into major financial issues that simply can't be taken care of, then and only then should you even consider dipping into the 401k monies.
Do some heavy thinking and research before you blow a good thing.
Best of Luck.
2006-11-07 03:53:13 · answer #2 · answered by Dick 7 · 1⤊ 0⤋
He is right, but why not roll it into a IRA. Dont have the job cut you a check though because the penalty still exist. Find a good company and have them roll the 401K. Or put the money into the new employer's 401K. Get a second job, cut yards, eat beans, but dont touch that money.
2006-11-07 03:34:27 · answer #3 · answered by Ms. Dorsey 3 · 0⤊ 0⤋
As long as you roll it over to another retirement account with a certain timeframe (I don't recall but it might be something like 60 days). It doesn't have to be another employer, it can be a retirement account at a bank (they need to code it as retirement money). As long as the money goes into another retirement account, there isn't an IRS penalty. If you do not roll it over to another retirement account, then you'll be subject to paying taxes on it. Again, I don't recall, but I believe it used to be a 10% penalty tax.
2016-05-22 07:30:26 · answer #4 · answered by Anonymous · 0⤊ 0⤋
10% excise tax
plus taxed as ordinary income (ex. 25%)
It really is best to roll it over into an IRA then take out a loan to pay debt. Good luck.
2006-11-07 04:02:57 · answer #5 · answered by amanda 3 · 0⤊ 0⤋