You are correct that you will take a huge tax hit if you simply withdraw the money. I rolled about 60% of mine into a self directed IRA after 59 1/2 and haven't regretted it in the least. I'm retiring next month and will do the same with the remaining money in the 401k.
You might want to check the new thread asking CM recommended financial advisors thread and/or ask questions yourself.
Thanks! I will check that out.
It's very hard to find accurate info about withdrawing from 401ks or IRAs but there is one fantastic resource from Nolo Press, the book "IRAs, 401ks & Other Retirement Plans - Taking Your Money Out" by Slesnick & Suttle. It will tell you exactly what you can and cannot do regarding retirement plan withdrawals, and any penalties.
In there you'll find out, for example, that if you are 55 or older when you leave your company, there is NO 10% penalty tax for keeping some or all of your 401k funds. (It will be taxed as income however; no getting around that.) Note: this age 55 exception does not apply to IRAs, only 401ks.
withdraw as much as possible from your 401k, take the penalty, and keep it in hard cash, hard assets and pms. there will come a point where the govt taps the available 6 trillion dollars in 401k accounts, likely converting it into some form of a government savings account. they will gladly give you an annuity in the form of worthless treasuries. cant happen? look at the gold confiscation act of 1933. the government forced all citizens to hand their gold over in exchange for about $20 an ounce. they then turned around and revalued it at $35 an ounce.
in 2011, when the treasury ran out of money to borrow due to the debt ceiling impasse, they tapped the pension funds of federal employees. http://www.washingtonpost.com/business/economy/treasury-to-tap-pensions-to-help-fund-government/2011/05/15/AF2fqK4G_story.html
now, consider the day of reckoning when the bond market is no longer the candy shop for our government, and the federal pension funds arent nearly enough for them. where will they turn next to fund operations? its fairly clear. remember, 401ks hold trillions of dollars, and is the easiest means to fund their bloated budget.
get your money out now.
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I have been waiting with teeth clinched for several years, for that moment when I can get hold of my 401(k) without the 10% early withdrawal penalty. That moment comes in mid December when I turn 59 1/2. Questions:
1) Should I be in a panic to cash in before the end of the year, with new tax laws coming into effect in 2013 ? I know that's a rather amorphous question because we may not know what those are going to be until December thanks to election year grandstanding and general gridlock with our political heroes. I am not at all sure I could even pull it off with only a few weeks left in 2012 anyway, but still I ponder this point.
2) With question 1) out of the way, if I take it all out at once (let's just say its a LARGE amount), its likely to put me into a higher tax bracket and I will get massacred in taxes. Am I right ? In uncertain times I know there are those who would say take the money (all of it) and run. Yeah, I get that, but part of me says "Whoa! The wise thing to do is only take a certain percentage each year, whatever it takes to stay within my current tax bracket, to minimize taxes."
3) Or should I just convert it all to a self directed IRA so I can at least control the investments, and perhaps cash out a bit at a time from there ?
I am really in the dark as to the tax implications of all this, perhaps I need to hire an advisor...
Any and all input greatly appreciated !