401K question..

[dr150]

OP,
You should also look into Long Term Care Insurance since your family's health plays into situation.

http://en.wikipedia.org/wiki/Long-term_care_insurance


if you're hard-up for finding a job, look into getting trained as a tax preparer (i.e. H&R Block). After training, it's a good way to make decent money on a flexible schedule. You'd be surprised how many fired 50+ year olds have made this doable transition to tax preparer.

 

[stlc8tr]

^^^
This.

Take an old 401k, roll it over into Traditional IRA, then convert into a ROTH IRA (in these successive steps). All the future gains will be yours for life. Not taxes to pay on it ever again.

The reason to do this is with the almost certain assumption that taxes WILL go up and you will pay more in the future on that old 401k than doing this transition today. That's why big-wig wealth advisors are driving their clients in the droves into this scheme.

Yes. You pay the tax now but you can break down the tax hit over more than one year with your tax guy.

I agree that taxes are fairly certain to go up but which taxes? By paying taxes now, you are betting that income tax rates are going to rise. This may or may not happen. Especially if a VAT becomes popular.

Also, any taxes paid now are paid on marginal rates. When you withdraw from a Traditional retirement account, you can structure it so the amount is taxed at effective rates.

If you are in a high tax state, you can move to a low or no tax state during retirement.

I'm not arguing against Roth retirement accounts, I think they're great. But you need to be aware of pros and cons.

It's best to have a mix of Traditional, Roth, and taxable accounts so you can be flexible when deciding from which account to withdraw from to minimize the tax hit.

 

[*kjm]

Just read this on Forbes may want to look into it.....

http://www.forbes.com/pictures/mjd45kkhi/leave-the-job-after-55/

Leave The Job After 55

If you leave a job in a calendar year that you turn 55 or older, you can withdraw funds from the 401(k) associated with that job without penalty. This applies even if you've gotten a new job. Warning: If you roll the money into an IRA, then the IRA rules, which impose penalties until you're 59 1/2, will apply. So if you get laid off at 55 and think you might need to tap your 401(k) to pay the rent, don't roll your 401(k) into an IRA.

Pay For Medical Insurance

If you're unemployed, you can take money penalty-free--from an IRA but not a 401(k)--to pay for health insurance. To qualify, you must be on unemployment insurance for at least 12 weeks, and you can't take the money out more than 60 days after getting a new job.



With all the rules I would talk with someone ASAP.

 

[BUTCH1]

Just read this on Forbes may want to look into it.....

http://www.forbes.com/pictures/mjd45kkhi/leave-the-job-after-55/

Leave The Job After 55

If you leave a job in a calendar year that you turn 55 or older, you can withdraw funds from the 401(k) associated with that job without penalty. This applies even if you've gotten a new job. Warning: If you roll the money into an IRA, then the IRA rules, which impose penalties until you're 59 1/2, will apply. So if you get laid off at 55 and think you might need to tap your 401(k) to pay the rent, don't roll your 401(k) into an IRA.

Pay For Medical Insurance

If you're unemployed, you can take money penalty-free--from an IRA but not a 401(k)--to pay for health insurance. To qualify, you must be on unemployment insurance for at least 12 weeks, and you can't take the money out more than 60 days after getting a new job.



With all the rules I would talk with someone ASAP.

Wow, did not know that, I thought it was 59.5 yrs old, it might be worth me paying a CPA so I won't make a mistake I'll regret later, as others have mentioned I will be looking into eligibility requirements for various govt. services, it would suck to take the tax beat-down AND find out you've made yourself ineligible for benefits. Sigh...I've got a lot of learning to do in the next several days, I'm going back to a large food distributor where I worked and see if my old boss is still there, I'm proficient with SAP and excell plus I can wheel a forklift like Lake speed on a meth buzz, maybe I'll get lucky, first thing tomorrow is a fresh haircut, don't want to look shabby while out looking..

 

[Fern]

Edit: *kjm's advice looks pretty good.

My suggestions:

1. Seek out all financial assistance you can. That's what it's there for, particularly given that you're a working man and not a chronic welfare sponge.

Be sure to check about Medicaid for your wife.

2. Your unemployment and high medical costs may qualify you for an exception to the 10% early distribution/withdrawal penalty of 10% (Would still be taxable as regular income though.)

First, contact your 401k plan administrator to see if they will approve you for the hardship or the 'after 55' exception (if they do, they'll report it to the IRS as an exception).

Here's a link about 401k exceptions: http://taxes.about.com/od/retirementtaxes/a/early_penalty.htm

Also check out the early withdrawal penalty exceptions for an IRA. If the IRA exceptions are easier to qualify for, role the 401k to IRA then use the IRA exception. Here's a link on IRA exceptions: http://economy.blog.ocregister.com/2011/02/27/tax-tips-early-withdrawal-penalties-on-iras/49825/

3. Before withdrawing the entire amount of the 401k consider pulling it out incrementally as you need it. As soon as you take any amount out income tax withholding (including 10% penalty if the administrator rules you you do not qualify for an exception.) will apply. This w/h will automatically become an amount you cannot rollover even if you find a job soon. I.e., you are guaranteed to pay income tax on that amount (and maybe penalty) even if it turns out you didn't need it.

4. If the 401k plan doesn't allow for multiple withdrawals, consider rolling it over to an IRA and take incremental withdrawals from it.

The key points here are to withdraw only what you need, and use the more beneficial of the 401k or IRA rules to your advantage.

5. Consider taking a loan, perhaps from your mother, and then after knowing how much you really need (depending upon whether you find a job quickly or not etc.) take a distribution from your retirement plan to pay off loan. This is, of course, another way to minimize income tax and penalty on withdrawals that turn out to be unnecessary.

I'm a tax CPA. PM me with questions if you need/want.

Fern

 

[Fern]

Wow, did not know that, I thought it was 59.5 yrs old, it might be worth me paying a CPA so I won't make a mistake I'll regret later...

Talk to your plan administrator if possible. It's best if they approve you for an exception and then code the Form 1099 reporting your distribution that way.

Fern

 

[sunzt]

Sorry about the situation Butch and I hope you can get everything together as soon as possible.

Please don't give a s*it about whatever the haters say about applying for any government assistance. They have no clue what your position is like. Your situation is exactly what some of those assistance programs are meant to help with, use them.

 

[dullard]

I didn't read the thread, so sorry if I repeat answers. And sorry for your job loss, I hope you find a new job quickly.

I'd say it is best to avoid the 401k withdrawal. While there can be exceptions to avoid the 10% tax penalty, there are many other drawbacks to consider.

1) Think of the very worst case scenario, where you don't get a job for quite some time. Case (a) you withdraw your 401k, spend it all, file for bankruptcy and you have nothing. The bankruptcy got you whole again, but you are flat broke. Case (b) you don't touch the 401k, spend what you can, and file for bankruptcy. The bankruptcy got you whole again, but this time you still have ~$40,000 in your 401k that the bankruptcy can't touch. If the worst case scenario happens to you, leaving the 401k alone is a far better option.

2) There are plenty of resources to help you: unemployment, hardship prescription drug discounts, Medicaid, etc. You might not need the 401k money as much as you think. I'd seriously look into the free or reduced price prescription drug offerings. After going to unemployment and then applying for government benefits, then go to the drug manufacturer. There are 3rd party assistance programs for the drugs, but why not try the manufacturer directly (no middle men to get in the way). Many of these programs (such as free or reduced price prescription drugs from the manufacturer) require a low income. If you withdraw your 401k, that is considered income for this year and you might not qualify.

3) You probably have other options that come before the last resort 401k withdrawal. Can you get to some of your home equity or even sell your home? Can you borrow from family? Can you live off of credit cards? Even at a ~20% credit card interest rate, you'll be charged a lot less with credit card interest than with tax penalties or with other options in the short or medium term job loss situations. Borrowing $25k for a year from credit cards costs ~$2700 assuming you borrow it as you need it. Getting $25k from selling a house costs about $10k in realtor fees (widely varying on your house value of course). If you have to pay the 10% fee on a ~$40k 401K withdrawal it will cost you $4k. For the short term borrowing need, the credit card is the cheapest route. For long term needs, see bankruptcy above. Heck, if you can get back on your feet after a year, your 401K will likely earn more on stock gains (~$3200 at 8% gains) than the CC interest will cost (~$2700).

 

[BUTCH1]

Talk to your plan administrator if possible. It's best if they approve you for an exception and then code the Form 1099 reporting your distribution that way.

Fern

Thank you Fern, my $$ is broken down into several plans (sip) ect, they were plans Energizer had in place and then when they bought HT, the 401 was rolled into Vanguard, I'm going to login into Vanguard tonight to get an exact breakdown then probably call them tomorrow, thanks for the offer on the PM, I will probably be taking you up on it once I get more specifics..

 

[*kjm]

Thank you Fern, my $$ is broken down into several plans (sip) ect, they were plans Energizer had in place and then when they bought HT, the 401 was rolled into Vanguard, I'm going to login into Vanguard tonight to get an exact breakdown then probably call them tomorrow, thanks for the offer on the PM, I will probably be taking you up on it once I get more specifics..

Good call and good luck.... you have been through hell and are a stand up person..... someone on this forum should help you and I wish I could but I'm an electrical engineer and don't have the skills you need.

I hope you get the help you need and everything works out for you. And thank Fern up front for lending a hand. That is what this forum should be aiming for... to help each other not to hurt!

 

[BUTCH1]

I didn't read the thread, so sorry if I repeat answers. And sorry for your job loss, I hope you find a new job quickly.

I'd say it is best to avoid the 401k withdrawal. While there can be exceptions to avoid the 10% tax penalty, there are many other drawbacks to consider.

1) Think of the very worst case scenario, where you don't get a job for quite some time. Case (a) you withdraw your 401k, spend it all, file for bankruptcy and you have nothing. The bankruptcy got you whole again, but you are flat broke. Case (b) you don't touch the 401k, spend what you can, and file for bankruptcy. The bankruptcy got you whole again, but this time you still have ~$40,000 in your 401k that the bankruptcy can't touch. If the worst case scenario happens to you, leaving the 401k alone is a far better option.

2) There are plenty of resources to help you: unemployment, hardship prescription drug discounts, Medicaid, etc. You might not need the 401k money as much as you think. I'd seriously look into the free or reduced price prescription drug offerings. After going to unemployment and then applying for government benefits, then go to the drug manufacturer. There are 3rd party assistance programs for the drugs, but why not try the manufacturer directly (no middle men to get in the way). Many of these programs (such as free or reduced price prescription drugs from the manufacturer) require a low income. If you withdraw your 401k, that is considered income for this year and you might not qualify.

3) You probably have other options that come before the last resort 401k withdrawal. Can you get to some of your home equity or even sell your home? Can you borrow from family? Can you live off of credit cards? Even at a ~20% credit card interest rate, you'll be charged a lot less with credit card interest than with tax penalties or with other options in the short or medium term job loss situations. Borrowing $25k for a year from credit cards costs ~$2700 assuming you borrow it as you need it. Getting $25k from selling a house costs about $10k in realtor fees (widely varying on your house value of course). If you have to pay the 10% fee on a ~$40k 401K withdrawal it will cost you $4k. For the short term borrowing need, the credit card is the cheapest route. For long term needs, see bankruptcy above. Heck, if you can get back on your feet after a year, your 401K will likely earn more on stock gains (~$3200 at 8% gains) than the CC interest will cost (~$2700).

Only about 15K in home equity, not worth the trouble and time, think of it, can you apply for another mortgage without a job? I have some CC debt but would like to avoid bankruptcy, your only allowed 2K of auto equity, my '05 is KBB around 5-6K so I'd have to sell it and buy a shitbox, a 2K car is one that runs, that's about it..

 

[BUTCH1]

Good call and good luck.... you have been through hell and are a stand up person..... someone on this forum should help you and I wish I could but I'm an electrical engineer and don't have the skills you need.

I hope you get the help you need and everything works out for you. And thank Fern up front for lending a hand. That is what this forum should be aiming for... to help each other not to hurt!

Yea, I did thank him and I'll tell 'ya it's been really, really nice to read encouraging posts (like yours). For a LOL moment, when my 87 yr old father in law heard he calls us up " I'D GO TO THAT PLACE RIGHT NOW AND DEMAND THE JOB BACK!"...OK Jim, calm down I'm sure the sheriff would be called in a heartbeat.