401K question?

Question

1. Are they the same in every state?
2. If you start a new job, what are your options?
3. Can you cash it out when you quit your job and start a new one?
4. What kind of penalties are there for cashing it out, if you can?

Thanks

Answer 1

1. 401k is a federal program that is not affected by what state you're in.

2. If your new employer offers a 401k, then their HR (human resources) department should have the information. Generally, your options are: How much of your paycheck do you put into a 401k account, and How is the money in the 401k to be invested.

3. When you quit a job, you should put it into a "rollover IRA". Any of the big stock brokers (Fidelity, etc.) will have information on rollovers on their web sites.

4. If you cash out a 401k before retirement age, the penalties are: a) the amount cashed out becomes part of that year's income for purposes of filing income tax, AND b) 10% off the top penalty for early withdrawl.

Answer 2

1) More or less. The general rules are the same but no two 401k's are the same. Some employers match a portion of the contribution. Some don't. The funds available to invest in would vary by plan.

2) a) Cash it out
b) Roll it over in to the new job's 401k
c) Roll it over in to a IRA (ie.....what I did)

3) Yes, but it is not recommended.

4) Taxed as ordinary income (Federal and State) plus a 10% penalty if you are not 59 1/2 years old.

Answer 3

1) The rules governing them are the same in every state (although investment options vary from company to company)

2) Most jobs offer a 401(k) plan. You should start investing right away and invest at least enough to take full advantage of the company match (and even more if you can)

3) If you quit your job, you can either keep your old 401(k) if the balance is high enough (I think there are rules governing this) or roll it into an IRA. If you cash it out, you will owe ordinary income tax plus a 10% penalty (and you'll lose years of potential growth).

4) As I wrote in question 3, you will have to pay ordinary income tax plus a 10% penalty on early withdrawls (before age 59 1/2) unless you have an extraordinary circumstance.

Answer 4

The 401K is the same in every state because it is a federal law not a state law.
You can defer $15,500 of salary in 2007. if you are deferring salary in one job and you change jobs you must let them know how much you have deferred for 2007 at the old job so that you don't go over the maximum allowable amount.
You can either cash out or rollover to an IRA or a 401K with the new employer.
If you cash out you will be subject to income tax and possibly an early withdrawal penalty of 10%.