What to do with your 401(k) if you get laid off

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mschwager's picture
mschwager
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Joined: Feb 1 2009
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What to do with your 401(k) if you get laid off

Each day lately the same terrible headlines monopolize the news: layoffs.  Tens of thousands of recently unemployed workers in the US are now facing tough decisions--one of them is what to do with your 401(k) or employer sponsored retirement account. Check out more from Mary Schwager and Examiner.Com:

http://www.examiner.com/x-1893-News-You-Can-Use-Examiner~y2009m1d28-What-to-do-with-your-401k-if-you-get-laid-off

investorzzo's picture
investorzzo
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Joined: Nov 7 2008
Posts: 1182
Re: What to do with your 401(k) if you get laid off

Some of the things people should consider.  Each of these should not be taken lightly. As only you know what is best.

 First, I recommend taking out your VIP while the dollar is still worth something. Paying down your mortgage or paying it off. Or using the money to pay down your debts. The reason I say this is because if the dollar devalues significantly, then it will be much harder to pay off these debts. Especially employer matching funds, as I consider this free money. This money can be used to buy food for a number of years or things like alternative energy systems to get off the grid. 

 I have heard already that social security is being denied by the government to certain people who make to much money-denied  by half. This is what some of the callers are reporting on financial shows.   Also those asking for their money from money market funds are being given the run around as to why they cannot get their money. I am not trying to cause a panic, just letting folks know that we are on the presipice of collapse and it may be wise to take what you can before your dollar is worthless. 

Crystal's picture
Crystal
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Joined: Nov 17 2008
Posts: 6
Re: What to do with your 401(k) if you get laid off

I had a couple of small accounts from previous employers and am using them to buy a house in an area of the country where the cost of living is low. I didn't have any trouble cashing out, though. Not sure if it was the brokerages, the small amounts, or the reason I volunteered (buying a house.)

investorzzo's picture
investorzzo
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Joined: Nov 7 2008
Posts: 1182
Re: What to do with your 401(k) if you get laid off

It all depends on your mutual fund and perhaps the loses involved. Not everyone will get this from their accounts. I'm just sending out a word of caution. From what I'm hearing out there.

Woodman's picture
Woodman
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Joined: Sep 26 2008
Posts: 1028
Re: What to do with your 401(k) if you get laid off

It's better to be employed and earning wges, but if you do lose your job you can finally get more control on your retirement funds than with your former employer's 401k plan which probably has limited options.  Roll it over to your own IRA so you have more choices but don't pay the 10% penalty.  If you think taxes will be raised in the future or you think you will be in a higher rax bracket in the future, then convert part or all into a Roth IRA.  With the Roth IRA, you pay the taxes now but won't have to in the future like with a tax deferred account.  The other advantage of a Roth is you can withdraw your contributions in 5 years without penalty, before reaching 59 1/2, should you absolutely need them. 

Traditional wisdom has been to not touch your retirement funds, but these are extraordinary times.  Iif you think your IRA options are not safe consider if it's better rate of return or safer option to pay the penalty of early withdrawal and put the some of money into something else like physical gold or paying off high interest debt.   

Consider also the government is likely to change the rules on everything that is no longer convenient under the old rules. 

Do your own diligence, there's lots of info online at irs.gov and other sites, run the numbers for each scenario and access the risks and your needs.  I believe if you educate yourself, you are your best financial advisor. 

WhoKnew's picture
WhoKnew
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Joined: Dec 11 2008
Posts: 41
Re: What to do with your 401(k) if you get laid off

Just a quick FYI - If you have interest free loans/credit card debt etc then do not pay those off. Before paying off any debt (in todays market) first try to move the balance to a low or interest free solution.

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