401K rollover or cash-out?

[snuggly mama]

Dh was laid off a couple of weeks ago, and is unlikely to be recalled. He has about $1000 in his 401K and needs to decide whether to roll it over to an IRA or take the pay out. We are leaning towards pay out because we carry a lot of debt and it seems silly not to use it to pay some of that off. I know saving for retirement is important, but I just feel like we really NEED the money right now. I also know there are taxes and penalties to do this, so I'd like other people's thoughts.

[lisalulu]

I only had 5K in mine when I quit working to SAH. I rolled it over. I have a hard rule about not touching anything I've saved for retirement (we have debt too that we are trying to pay off).

[CityChic]

I work in the industry and would say find a good financial advisor and roll it over.

I know how nice it would be to have the money (I almost took mine out!) but I think you will be happier if you roll it over and don't face the penalties. It may also motivate you to contribute to your rollover plan when/if you can in the future!

[Herausgeber]

You'll only net about half that money if you cash out. Still think it's worth it?

[Vanessa]

Roll it over. The few hundred really won't make as much of a difference to you now as the money will at retirement.

[A&A]

If I were you,I'd cash it out and pay off the debt and then STAY out of debt!

[velochic]

What Herausgeber said. You definitely want to roll it over and not touch a penny of it. Think of it this way - if you take a pay out, you're out 40% - 50% and I'm sure you don't have any debt that charges you those kinds of interest rates.

Also, $1000 is not enough money to be seeking advice from a financial planner. For starters, many have minimums to be invested. Some as much as $1 million of investments before they'll even talk to you. Secondly, their fees are quite expensive (we had one draw up a rough financial plan for us a couple of years ago... this was just asset allocation and not specific fund picks... and it cost us $750).

[snuggly mama]

So, if we roll it over and then dh gets a new job with a 401K, can the fund be rolled over again so it's all in one place? I'm am so dumb when it comes to anything financial. I can figure out household bills and stuff, but that's about it. Anything else makes me :

[lrlittle]

I'd roll it over unless you REALLY need the cash. It will be much less than $1000 after all the penalties.

[ani'smommy]

I was in the same position recently, and while we really could have used the money, we rolled it over. It was about $1500, too.

[velochic]

Originally Posted by snuggly mama

So, if we roll it over and then dh gets a new job with a 401K, can the fund be rolled over again so it's all in one place? I'm am so dumb when it comes to anything financial. I can figure out household bills and stuff, but that's about it. Anything else makes me :

He actually has 60 days to roll it into a new employer's 401(k) program. So you have some time to see what happens. If he doesn't find anything within 60 days, you can STILL roll it into an IRA at a later time (you don't just lose the money if you don't do anything with it... you can actually even just leave it where it is). For the time being, I would just not do anything and see if he gets a new job. If he does, and they have a qualifying 401(k) program, then HR can help him bring the money to his NEW 401(k). If he doesn't find a new job, the money can later be rolled into an IRA. I highly recommend Vanguard funds if you do end up rolling it into a traditional IRA.

[aircantu1]

I'd roll it over -- there'd hardly be anything left after taxes and penalties if you cash it out.

[mommaof3boz]

I just went through this. Unfortunately, mine was about 75 dollars from being 5000$. The place I worked for took forever to get the paperwork to me. I literally had days before the interest would be added. Once the next interest was added the company had a clause when it hit 5000 then it was locked down and I couldn't roll it or anything and wouldn't have gotten it til age 65 then in monthly payments. Because I had NO time to get this done I cashed it. It wasn't a 401k, it was something else, some sort of retirement plan that only the employer contributed to, not the employee. So they got to set all the rules. They took the mandatory 20% taxes out.

[maybemom05]

Roll it over, to a company with a reputation for charging low fees. (I am not affiliated with them in any way, but I like Vanguard - index oriented funds, low fees, decent customer service)

If you cash the money out, you will have to pay taxes, plus a penalty, which will eat away a huge piece of your investment. If I were you, I'd roll it over instead, and put it into a "target retirement" fund. The allocation of the fund will change over time, so you don't have to worry about it.

$1000 isn't huge, but it IS a nice start towards a secure retirement.

Good luck to you and DH, I know this can be a stressful time!!

[PiePie]

roll it over into a "no-load" fund. you will have to shop around for someone who will let you open a fund with as little as $1,000 -- when I checked, Vanguard required more (perhaps I wasn't thorough). But I know that one of the major players has a $1,000 minimum.

i do feel your temptation to cash it out, but really, you want to draw on more liquid accounts because the penalties for withdrawing from a 401k except for specified purposes (education, first home purchase) are HIGH. You may be able to target your withdrawals into the permissible (no penalty) categories.

[Amys1st]

Make like a dog and teach it to roll over.

Also, do it asap if not sooner. Remember, in a 401k, you only have what funds the co offers. When you open an IRA, you have millions of choices. A good financial advisor will help you set up making it grow and show you why you need to make it grow.

OTH, using cashing it in to pay debt as an option is the exact thinking that got you into debt in the first place. Not trying to flame or be snarky but please please change that way of thinking going forward. Use this as a learning experience. Also, when DH gets settled into his new job, contribute the MAX to the retirement acct. It will teach you how an acct grows and how you will get returns on your money. It will also give you a tax break. After you see this, convert that original IRA into a roth. It sounds like a lot being thrown at you, but when you are 50, you will thank me.
BTW- we are 35 and have over 100K in retirement right now.

[lolo'smom]

Originally Posted by PiePie

i do feel your temptation to cash it out, but really, you want to draw on more liquid accounts because the penalties for withdrawing from a 401k except for specified purposes (education, first home purchase) are HIGH. You may be able to target your withdrawals into the permissible (no penalty) categories.

I agree to roll it over, most IRA's have hardship withdrawls or something of the like where you can use the money for tuition or rent, mortgage. You might have to wait a period before you do that and by then you might find that you didn't need the money in the first place.

Even if you don't contribute to it now, you will probably want to in the future and if you decide to cash it out it will take you a long time to save up the money to open an IRA in the future. Leave it as it is. I have one that I rolled over to a freedom plan, where it is invested agressivley while I'm younger and then becomes more conservative as I get older and I never even have to think about it. It makes money on it's own and your's will too.

If it helps, I also have a ton of debt and could use the money now, but in the end it's just not worth it.