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Retirement Place > Retirement Planning - IRAs, 401(k)s, RolloversGet Help with 401(k) Retirement Plan Options
Cashing in your 401(k) instead of rolling it over Should I Cash in my 401(k) plan? So, times are tough and you are thinking about cashing out your old 401(k) to repair your car or perhaps you are asking yourself the question “should I use my 401(k) money to (buy a house, pay my bills, go on vacation, etc.)?" Frankly, the answer is No. That may not be the answer that you are looking for but it is very important that you take investing for your retirement very seriously. It does not matter if you are only 25, you know that you will never get old and will never need the money. It doesn’t matter if you only have a few thousand dollars in your 401(k) account because you know it won’t make a difference. Right? Wrong!
How much is that money really worth to you?If you have $10,000 in your 401(k) and you decide to cash it out today then you obviously have nothing left.
View the compound effect on your money or the growth that you are giving up when you take the money and run.
Still considering cashing out your 401(k)? Consider this:
Taxes and Penalties for Early Withdrawals!
Taxes: You may be taking home a lot less than you think… and it may be much more expensive than you think! If you choose to cash out, 100% of the amount that you cash out of your retirement account becomes fully taxable. Why is that important?For starters, if you are thinking “Ka-Ching!” You may be in for a big surprise. For example; If you were only cashing out $10,000 and you were younger than 59 ½, you will automatically need to chop 10% off of the top of your anticipated payout. Then, most employers withhold Federal and State income taxes so if you happen to know your tax bracket you can do the math on that one. For illustration purposes – let’s say that you have to pay 25% federal tax and 5% state tax. If you take the taxes and penalties out you will lose roughly 40% off of the top (more if you are in a higher tax bracket). If these are your only fees then your $10,000 windfall suddenly turns out to be only $6,000 by the time it reaches your hands but you do get to send your money straight to Uncle Sam instead of using that extra $4,000 on your intended purpose. Consider the examples in the graphs above and ask yourself if it is worth it to get roughly $6,000 today (from your original $10,000 minus the taxes and penalties) and give up all of the growth that you could earn if you left it alone. In addition to being fully taxable - the withdrawal is treated as earned income in the year that you make the withdrawal. This amount is then added to your current income and could potentially push you into a higher tax bracket - causing both your regular income and the amount of the withdrawal to be taxed at a higher rate. You could end up with significantly less than you expected between taxes that are withheld, penalties for early withdrawal and the potential bump into a higher tax bracket. Be sure to consult with your tax adviser prior to making any changes. Rather than spend your retirement account today you could have much more money to spend in retirement.
Call us today at 919-719-7200 or 800-50-PLACE for more information! Should I cash out my 401(k) retirement account or roll it over?Related Articles
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What can you do with your 401(k) when you change jobs? Get straightforward advice about your retirement plan options so you can make smart decisions! How to Roll Over Your 401k. 401k roll over
Make smart decisions with your old retirement plans today so that you can maximize your potential and get the most of your financial future!
Rollover your old 401(k) to a Place Trade Self-Directed IRA or Speak with one of our Experienced Financial Consultants to get Advice on your options or help develop a new financial plan.
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