Turning 59 1/2 in December - what to do with that 401(k) ?

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scotthw's picture
scotthw
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Joined: Oct 16 2008
Posts: 53
Turning 59 1/2 in December - what to do with that 401(k) ?

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 !

Doug's picture
Doug
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Joined: Oct 1 2008
Posts: 2763
IRA

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.

scotthw's picture
scotthw
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Posts: 53
Thanks!  I will check that

Thanks!  I will check that out.

psebby's picture
psebby
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Joined: Jul 4 2009
Posts: 6
No 401k penalty if over 55

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.

kito's picture
kito
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Joined: Feb 24 2011
Posts: 7
401k

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. 

KARA1954's picture
KARA1954
Status: Member (Offline)
Joined: Mar 7 2014
Posts: 1
401k

Turning 59 1/2  in April 2014 what next with my 401k .Do i have to roll all my 401k to IRA ,can i put part of it in . losing my job in July 2014.down size ,

DennisC's picture
DennisC
Status: Bronze Member (Offline)
Joined: Mar 19 2011
Posts: 35
401K

In my opinion, I would think about transferring the funds to a self-directed IRA.  If your desire is to stay invested in the "market" in some manner, moving to a large mutual fund provider would likely give you a larger variety of options with regards to cash, bond, or stock funds.  These providers will usually offer to help you with the transfer, which is quite simple, and may provide some limited, investment direction assistance at no charge.  It is usually possible for former employees or retirees to keep their existing funds in the company's 401K after separation.   A couple potential downsides: there are usually limited choices with respect to available investment funds and the management fees charged can be quite steep.  Naturally, there are other options that include, among others, bank and credit union IRAs, cashing out and paying the taxes, and putting the money towards an alternate asset.  There are many opinions on this site along with a lot of useful information from Chris and guest contributors.  In my experience, there is no shortage of people willing to (or desirous of) managing your financial assets for you.  I believe that one of the best investments one can make is to try to be as personally knowledgeable as possible on the topic.  Then, go from there and do what you feel makes the most sense for your needs and for a restful sleep at night.

With respect to Roth versus traditional IRA, I think David Collum nailed it:

http://www.peakprosperity.com/blog/80335/2012-year-review-contd#roth-ira

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
The tax spike mentioned in

The tax spike mentioned in David Collum's article can easily be avoided by gradual conversion. As mentioned below, retirement funds may be at risk regardless of Roth or deferred-type account status which can only be controlled by not having them there in the first place. There seems to be no consideration for the primary argument for the Roth. It's easier and cheaper to tax than to confiscate. If tax rates balloon in the future, paying a marginal tax rate now,  may in retrospect look prescient, or am I missing something?

Moleskow's picture
Moleskow
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Joined: Oct 6 2014
Posts: 1
How often can you borrow and withdral from an IRA?

Earlier this year, I borrowed from my IRA but payed it back within the required 60 days. I was 59 at the time.

Now that I am 59 1/2 I would like to make a withdrawl.  Am I able do this as it is still with in the same calendar year as when I borrowed from the account? 

A prompt response is appreciated.  Thanks!  Mike

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