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Have you been considering the possibility of cashing out your old 401(k) instead of rolling it over? Has the thought of taking a loan out or even cashing in your current 401(k) plan crossed your mind as a potential money problem solver? Perhaps you want to pay off some bills or you want to get a new car or go on vacation in Europe. You may want to think more than twice about this one...  

Statistics show that the majority of young people (and far too many older people) tend to take their retirement plan money and run when they are changing jobs versus saving it and rolling it over. Although some individuals have concerns about cashing in their nest eggs many others think nothing of taking a loan out against their 401(k) retirement plan because they are actually only borrowing from themselves. 

At the same time, most people that are nearing retirement age not only state that they wish that they had started saving earlier but also, in cases involving those who had not held on to their retirement savings accounts or paid off 401(k) loans, state that they wish that they had never touched their retirement funds. These individuals continue to wish that they had allowed their lump sums to grow over time (while it was on their side). In fact, most admit that their reason for cashing in the money was not that important and often they do not even remember what they spent the money on!

Prior to making your decision as to whether or not cashing out or taking a loan from your retirement plan is a good idea, for you, please consider the following; 

Is it really that important?  

Consider how important taking the money out today actually is to you versus what the difference will be to you as you move closer to retirement. (Yes, believe it or not, you will get older.)                                                              

Use this scenario as a yardstick to measure how important taking the money out of your retirement account actually is:  

If you are literally dealing with a life or death situation and this money is the only option between life and death then, without argument, taking the money is your best option at this time. You will need to work very hard to make this up later however you cannot make up for the loss that this money will help you avoid.  No need to feel guilty here.

Any other reason that you are considering for cashing out or borrowing against your 401k should be weighed against this level of seriousness before truly being considered as practical.

Surprising Sums:  

When cashing out, most likely you will actually receive significantly less money in your hands than what you expected. For example; If you plan to take $10,000 out of your 401(k), the actual amount that you will receive (in the case of a cash out, not up front on a loan) may be much closer to $6,000 than $10,000 after state and federal taxes, as well as penalties for early withdrawals, are taken out. (See more on taxes and penalties below.)

Will you really ever pay it off?  

Regardless of your best intentions... sometimes life happens.  Many individuals take loans against their 401(k) plans for a variety of reasons (most for good intentions like buying a house or even sending a child to college) however; unfortunately, many of these loans are never repaid.
   

Taxes and Penalties:  

What is worse than losing the potential growth on your investments because you did not repay your loan? Consider the impact ~ whether you have taken a loan or taken a lump sum:

• Changing jobs or In the case of a job loss:

In the case of a job loss or change of employer (where you are no longer working for the same company that holds your qualified retirement plan), where the original 401(k) loan has not been repaid (and is not repaid prior to separation of employment), the entire remaining balance of the loan is treated as a disbursement or withdrawal and is fully taxable. 

• Potentially higher taxes:  

The entire amount will be added to your current year's income and could potentially push you into a higher tax bracket causing you to pay even higher taxes for the year.

• Penalties for early withdrawal:

If you are under age 59 1/2 you will be required by the IRS to pay a 10% penalty for early withdrawal of the entire amount as well! 

So, what is the big deal?  What is the bottom line?

While there are countless other factors to consider, for now, let's focus on the potential growth value of keeping versus liquidating your retirement account nest egg and what the difference could mean to you over time.  

If you borrow from your 401(k) to pay bills, take a vacation, buy a car or any other depreciating asset; over time the value of the original amount that you withdrew will be consumed and you will now have $0.00 for retirement versus the original head start. Had you left the money alone, you would be amazed at what your nest egg could turn into simply by benefitting from the power of time.  How to Roll Over Your 401k.

If you take the money out of your 401(k) retirement account:

Cash out = Spend $6,000 (all that is left - if you are lucky - of your $10,000 withdrawal after taxes and fees)

Keep $0.00 (what is left in your retirement account today) and have $0.00 growth on this amount at retirement,

Keep the original $10,000 inside of a 401(k) retirement plan or Rollover IRA (at 8% with no other funds being added or subtracted) and enjoy your retirement in:

10 Years =   $21,589

20 Years =   $46,610

30 Years = $100,627

40 Years = $217,245

45 Years = $319,204

Smart Money Move:

Rollover your old 401(k) to a Place Trade IRA today!

Rather than suffer through all of the disadvantages above and risk a lower standard of living than you had planned for your golden years, make the smart choice and take control of your financial future! 

For more information on cashing in or taking your money out of your 401(k) or another retirement savings plan please review the official IRS website and visit: Cashing in your 401(k) instead of rolling it over?

(Please be sure to check with your tax and/or legal advisor prior to making any contributions, withdrawals or other changes to your retirement account. Place Trade Financial, Inc. does not offer tax or legal advice and nothing contained herein should not be considered as tax or legal advice under any circumstances.)

Call us today at 919-719-7200 or 800-50-PLACE for more information!

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