Are we going to lose money if we cash out our 401K now b/c of the market?

Question

My fiance has a 401K and recently switched companies and we decided it was the best thing to cash out the 401k. However, with the market crashing, does that effect how much the balance will be, or did they freeze the account since we're doing paper work to have it cashed out? I've never had one so I don't really know how it works. Thanks.

We already know we're taking a 30% loss for early withdraw. I'm simply asking if they amount we get will be less (if it varies with the market). For example, after taxes we WERE going to have about 8,000. Are we going to have less now that this month the stock prices are going down?

Thanks for all the advice, but we've made our decision to cash out. There's more behind the scenes- he just started a new job, which the company is only a year old, and may or may not be profitable. We're cashing it out to have a fall back, plus they are laying ppl off at my job so we want to have the cash available to us. We are still continuing a new 401k under my name and not planning on just blowing what we cash out on. We want to wait a few months to see how the new business pans out and then we'll add it to my 401k if we're safe or put it into an ira.

We know we're losing some money but with the risk involved we're willing to take it.

Answer 1

Your 401k assets will not "freeze." Your assets continue to be invested until the day the company makes the distribution to you (cuts the check to you).

Let's say your 401k assets were worth $8,000 last week. Let's also say that the company processes your paperwork today and cuts the check today. Your payment will be based on your assets' value today, which could very well be less than $8,000.

Answer 2

Agree with the others that warn against cashing out. The company cannot give you a penalty for early withdrawal. It is your money, not theirs. You may lose some vesting on any matches, depending on the particular plan, but the company doesn't have rights to funds to which you are 100% vested. You will, however, face the 10% penalty, with a few exceptions granted by the IRS, and yes, the money will be treated as regular income, so you will likely only keep 2/3 of the actual value at best, depending on your tax bracket.

But this wasn't what you asked. You asked if you would lose money because of the market. No, it isn't crashing...however, in the most basic terms, you make money in investments by buying low, and selling high...What you are doing is selling low, and that is a horrible idea, and the only guaranteed way to lose money in the market.

The investments will likely stay exactly where they are until the day they cut the check, when your positions will be closed, and the balance put into a cash sweep account, and then you are out.

Save yourselves a mountain of money, and roll this into an IRA...

Answer 3

Your market value will be determined the day you place the order to sell your mutual funds (which is what you are doing when you cash out your 401k). As the market was down 360 points today, you will more than likely wind up with less than the $8000 you said it was worth. But it depends on when you place that order.

With that said, I would STRONGLY suggest that you do NOT cash out his 401k. Not only will you lose money to taxes, but you will also lose years of potential growth. Even a sum as small as $8000 can be significant if left alone to compound and grow over time. Instead, roll his 401k over into an IRA and let it grow. Any financial advisor can help you do it. Good luck.

Answer 4

I don't know enough about the current state of the stock market to advise you on that issue. I also don't know if they freeze your account balance as soon as you do the paperwork to cash out.

It may be too late for you consider this but if not....

What will really hurt you is the taxes. If you cash out now then the money will be taxed just like any of your earnings. And if there is a sizeable amount in there and it is enough to push up your annual income for the year to the maximum bracket, then you may end up paying the maximum tax rate on it. Of course, the smaller the amount of money, the lower the tax rate will be.

The taxes will probably hurt just as much as taking out the money during a market slump. However, if your using it for something like paying off high interest credit card debt, it may be worth it.

The main advantage of the 401 K is you don't pay any taxes on it until you retire and the money accumulates tax free. There are two options: if your husband's new company has a 401K, then you have a certain amount of time to rollover the assets into the new account without paying any taxes. If the new company doesn't have a 401K to rollover into, then check into rolling it over an IRA account in a bank.

I don't know your situation so you may have good reasons for cashing out. However, by cashing out, you get hit with taxes.

Answer 5

If your money is still in the old company 401K then yes it will go up and down based on what it is invested in, unless you change how it is invested.

Just because you leave a company does not mean your 401K changes. You can leave it there if you wish.

Now if you want to get it out of that 401K you have 2 options:

1) roll it over to a new program.
2) cash it out. Generally there is a 10% penalty and income taxes that come with that.

Answer 6

The investments will fluctuate until the actual order to sell is received and executed.

The market didn't crash - but it is down a few percent.

Cashing out a 401(k) is irreversible. I understand the desire to have the cash as a hedge against things, but why not wait until one of those things happens. If everything worked out in the best possible way, you could keep the tax advantaged status of that money. You can always cash it out later if you need to do so!

good luck!

Answer 7

You will get paid the share price on the day the transaction goes through. From that they will deduct all fees and taxes applicable.

Bad idea to cash out. The market goes up and down and if you're young you have time to ride it out. You could move to other funds and take the hit that way yet still save for retirement.

Answer 8

cashing out will cost you a lot in taxes, no matter what the market is doing. It is probably best to wait, or roll it into another qualified plan. (like an IRA) then you don't have to pay any tax penalties.

Most libraries have great personal finace books and you can start learning about how to handle your money from them.
I like "Personal Fiance for Dummies" as a great introduction.

Answer 9

I would not cash it out. You will only get about 2/3 of the money after taxes and penalties. I would roll it over into an IRA with another company. That way you aren't taxed and fined.

Answer 10

If you cash out, you have to claim the income for this year.
Keeping it in the 401k depends on who is handling your investments. A lot of large financial institutes utilize your money to make investments, if they make a boo boo, you loose, if they are smart, you will be ahead.
Everything depends on how good are the people handling your 401k.

Check your statements, you can tell if your money is growing, slowing, or blowing in the wind.

Hope this helps.