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Anyone taking the 10% penalty and cashing out 401k or IRA?

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  • Thu, Dec 10, 2009 - 07:18pm

    #51
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

poisonivy-

Yep, I had considered that.  Since I wanted to withdraw it all anyway, paying the taxes and 10% penalty was something I was already willing to accept.  Sort of a sneaky roundabout way to (partially) cash out now seeing as there are no other options available to me.  I suppose most people (outside this community anyway) would be shocked at that plan, as most take 401k loans out with the ultimate intention of paying it all back into their 401k.  There’s only a very few people I’ve told about this loan; most I think would not understand my reasoning, and I get enough crazy looks as it is after I’ve made my case that our situation is likely The Great Depression 2.0.

– Nickbert

  • Thu, Dec 10, 2009 - 09:31pm

    #52
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

[quote=poisonivy113]

If you take a loan out against your 401k, that can effectively trap you in the job. The full amount will be due within 60 days of your leaving the job (for any reason) or it will be considered an early withdrawal and you will be subject to taxes and the 10% penalty, as if you had withdrawn it.  Just something to be aware of when considering that option. I’m NOT pointing this out to support any particular action, I just happen to be aware that most people don’t know this at the time the loan is made- and get a nasty surprise when laid off. 

[/quote]This is exactly what happened to me in 1997.  Thank goodness that it was only a few thousand dollars!

  • Fri, Dec 11, 2009 - 11:39pm

    #53
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

This thread makes for an interesting read (especially the posts created in March).

 My $0.02:

Not that it matters much but if 401k’s are nationalized (which would not be too difficult to imagine), funds will not be converted into US T-bills and notes.  It is far more likely that they will be converted into “Intragovernmental Securities”.  This is one step below the standard US IOU (T-bills and notes).  UST’s are negotiable (even if they collapse in value they CAN be sold in secondary markets if buyers can be found.

Intragovernmental Securities are non-negotiable IOU’s from one government agency/fund to another US govt agency/fund.  Before they can be converted the US Treasury would have to go out to bid selling real (brand new) UST’s and only once they had money “in hand” from that auction could they transfer funds to the govt. agency managing your converted 401k once you were eligible to “cash out”.

In other words, the US gov would have to sell a new (never before existing)  IOU to pay the IOU that was issued in your name years before.

This is how Social Security and Federal Employee Retirement funds are managed.  The money coming into the funds are immediately sent to the general fund and spent with an intragovernmental security issued (with the promise to be paid + interest) as an account entry. 

Just to restate, this would be financial instrument that is a promise to pay based on another promise to pay dependant on a market that is willing to buy on the “full faith and credit” of the US govt.

FYI…It is predicted that there will be a total of $12 Trillion dollars of sovereign debt issued THIS COMING YEAR (2010) ALONE by nations around the globe.

That doesn’t inspire a lot of confidence, does it?

  • Tue, Dec 15, 2009 - 10:55am

    #54
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

I’ve thought about it and I’m watching. If political agenda and corruption continues without any change of course in 2010, I believe I will.

  • Tue, Dec 22, 2009 - 07:28pm

    #55
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

Great post!  I’ve been searching for opinions on this for months.  I feel that everyone around me still has their head in the sand.  Sometimes makes me think that I am the one who is crazy.  Anyone else feel that way?  We are such a minority here.  At least I feel that wasa in south central, Pennsylvania.

Any way,  I want some opinions on this.  I have $$ in an IRA that I want to cash out.   Would it be smart to take out 1/2 now … before 2009 is over…..then take out the remainder in 2010??  Would that make more sense to break up the tax over 2 years and possible stay in a lower bracket? 

The Bush Tax cuts are THROUGH 2010, right?

AND…

For those who are “stocking up on needed supplies” with their cash…..

Can you share that information of what you are actually stocking up on?  Any recommendations?

Being a mom of 3 young kids, I need to take action and stop “hoping” that all will be fine.

Thanks!

~S

 

 

  • Tue, Dec 22, 2009 - 07:47pm

    #56
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

[quote=Mom-2-3-kids]

Great post!  I’ve been searching for opinions on this for months.  I feel that everyone around me still has their head in the sand.  Sometimes makes me think that I am the one who is crazy.  Anyone else feel that way?  We are such a minority here.  At least I feel that wasa in south central, Pennsylvania.

Any way,  I want some opinions on this.  I have $$ in an IRA that I want to cash out.   Would it be smart to take out 1/2 now … before 2009 is over…..then take out the remainder in 2010??  Would that make more sense to break up the tax over 2 years and possible stay in a lower bracket? 

The Bush Tax cuts are THROUGH 2010, right?

AND…

For those who are “stocking up on needed supplies” with their cash…..

Can you share that information of what you are actually stocking up on?  Any recommendations?

Being a mom of 3 young kids, I need to take action and stop “hoping” that all will be fine.

Thanks!

~S

 

 

[/quote]We did this a few years ago. I’d do it again without even thinking about it. I’m not a CPA but I think the Bush tax cuts have more to do with estate taxes, when we emptied we had other investments and got slammed in the upper bracket so I’m not sure how it will be in 2010.

As far as food there is a thread somewhere. We did canned food and I wouldn’t do that again. Some rice we had went bad. Rotation I learned is key. Life is hectic so for us we bought 3/4’s of a cow (great if your not a vegetarian or vegan) and that has gone well. We will do it again soon, I found a solar freezer that we will likely invest in as once the generator gas goes out there would be a LOT of meat. Rainwater collectors are good, we have one and will expand on this as well. Best of luck.

  • Tue, Dec 22, 2009 - 08:24pm

    #57
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

[quote=Mom-2-3-kids]

Great post!  I’ve been searching for opinions on this for months.  I feel that everyone around me still has their head in the sand.  Sometimes makes me think that I am the one who is crazy.  Anyone else feel that way?  We are such a minority here.  At least I feel that wasa in south central, Pennsylvania.

Any way,  I want some opinions on this.  I have $$ in an IRA that I want to cash out.   Would it be smart to take out 1/2 now … before 2009 is over…..then take out the remainder in 2010??  Would that make more sense to break up the tax over 2 years and possible stay in a lower bracket? 

The Bush Tax cuts are THROUGH 2010, right?

AND…

For those who are “stocking up on needed supplies” with their cash…..

Can you share that information of what you are actually stocking up on?  Any recommendations?

Being a mom of 3 young kids, I need to take action and stop “hoping” that all will be fine.

Thanks!

~S

[/quote]

Hey Mom –

Welcome to the site.

Here are a few links to threads that might come in handy in your planning efforts.

https://www.peakprosperity.com/forum/food-storage-lessons-learned-and-recommendations/19518

https://www.peakprosperity.com/forum/consolidated-list-links-existing-preparation-threads/27912

Lots of good info – don’t be overwhelmed by the list or get frustrated.  The fact that you are even asking the questions puts you far ahead of the vast majority of people.

Good to hear you have broken the “hopium” habit as well!

Again, welcome and good luck with your preps.

  • Wed, Dec 23, 2009 - 12:30am

    #58
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

[quote=Mom-2-3-kids]

Any way,  I want some opinions on this.  I have $$ in an IRA that I want to cash out.   Would it be smart to take out 1/2 now … before 2009 is over…..then take out the remainder in 2010??  Would that make more sense to break up the tax over 2 years and possible stay in a lower bracket? 

The Bush Tax cuts are THROUGH 2010, right?

~S

[/quote]

This is exactly what our broker recommended. In addition to breaking it up over two years, in our case, work slowed down (we are self-employed) so likely a partial will not take us into a higher tax bracket this year, whereas if we took it all out at the beginning of 2010 and work picked up over the year, we could find ourselves paying more. You do have to move on this though – it takes 5-8 working days, I believe.

The problem we have is, until we have a place where we can store all the food and whatever other items we would want to stock up on – how do we keep the funds? In cash in the bank? Leave it in the IRA’s but as cash instead of in the market? (this is what the broker recommended.) I don’t feel like it’s any safer that way, but is it any safer in the bank?

I’d love to hear where people feel safe keeping their dollars until they can invest in what they are planning for (in our case a property … but the search is going longer than planned since we’d like to purchase elsewhere from where we live … and right now we aren’t sure where that will even be.)

  • Fri, Dec 25, 2009 - 02:05am

    #59
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

The problem we have is, until we have a place where we can store all the food and whatever other items we would want to stock up on – how do we keep the funds? In cash in the bank? Leave it in the IRA’s but as cash instead of in the market? (this is what the broker recommended.) I don’t feel like it’s any safer that way, but is it any safer in the bank?

I’d love to hear where people feel safe keeping their dollars.

Thanks guys…

I would ike opinions on this, as well.  I did take cash out of my local bank. I left a little in there for bills..etc.   I bought some silver pre-1964 coins and 1z gold coins.

Since I am cashing out my IRA next week, I need to figure this out…as far as what to do with the cash.  I sure do not want it sitting in the dollar, that’s for sure.

I do like the coin idea, since there will be no taxes if/when I ever sell.

I want to buy more gold, but am weary of confiscation.  I am thinking that if that does happen, I can just drive up to Canada and unload it for Canadian dollars, if I had to.  Anyone have an opinion on this? 

I bought some Australian dollars, but I want to buy more foreign currency.  The question is…what is safe.  Seems like many currencies are not doing so well. Not as bad as the dollar, though.

Since the dollar is on a rally right now…I want to buy while we still have the rally. I know it won’t last long.

I was thinking of Chinese Yen, Japanese Yuan., Swiss Franc, Canadian dollar…more Australian dollars?

 I am trying to find what currency will benefit the most from the fall of the dollar.  Maybe the Yen, since the Yen is so devalued…the only way to go is UP?

Any opinions on this and other thoughts of where you all are putting your dollars into…. would be greatly appreciated.

Thanks!

~Stef

  • Fri, Dec 25, 2009 - 06:27am

    #60
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    Re: Anyone taking the 10% penalty and cashing out 401k or …

Newlywed Safewrite here, age 54, new husabnd also 54 – so pulling money out of retirement is a big step for us. He has a 401K; I have a self-directed IRA. We have a list of things to do to prepare, and the only way they will get done is if I take some of my money out. So I met with my husband’s accountant. I worked half of this past year before I moved to this semi-rural area. The accoutnant said that sonce we both had incomes this year an IRA withdrawal  would bump us from a 15% tax bracket into a 25%, so I will make my withdrawal after the first of the year.

I have a question for the group – HOW can he get some of his money out of the 401K? He was told that the only way he could get it was to quit his job. We are very worried about confiscafion of his hard-earned retierment funds into an insolvent government “pension” fund. And yes, I read the previous posts and will suggest that he take a loan out.

Thanks,

Safewrite

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