401(k), timings ...greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
# # # 19981119
Subject: 401(k), timings ...
The only recourse to preserving ( liquidating ) 401(k) assets is to quit/change employment.
If someone quits/changes employment, what is the timing of TAX liabilities/taxability?
Known (?): 10% penalty deducted from premature cash-out.
When does "possession" for income tax liability purposes happen?:
a.) When transaction is initiated?
b.) When check is mailed?
C.) When check is received ( signe for )?
d.) When check is cashed?!
e.) All of the above? ;-)
Financial experts ... TIA!
Regards, Bob Mangus # # #
-- Robert Mangus (firstname.lastname@example.org), November 19, 1998
Certainly not an expert on 401-k cashouts but I think tax issues depend on your particular plan. If you roll it into an IRA for instance you may avoid the 10% early withdrawal and postpone the tax liability till the following year. Could be wrong but seems I read this somewhere .
-- Alan Cline (email@example.com), November 19, 1998.
Bob, Actually it is none of the above. Rather it is when the transaction is completed, of course that might be what you meant by (a) however there is a distintion. The transaction might be initiated on day 1 but not executed until day 2.
-- CP (Spoonman@prodigy.net), November 19, 1998.
"The only recourse to preserving ( liquidating ) 401(k) assets is to quit/change employment."
In most cases yes, but...... if your 401k plan let's you contribute both pre-tax and after-tax then you may be able to get the after-tax portion, along with earnings on the after-tax portion, out of the plan without penalty. I did this with the 'after-tax' part of the money that was in my 401k.
You can only avoid all penalties by having it rolled into a new self-directed IRA, usually referred to as a direct rollover. The funds must not be made available to you, only to the new custodian of your IRA.
The good thing about this is that once it's in your IRA you can invest in many more types of things than just the options in your 401K plan. You can transfer it into a bank (gag) or start your new IRA as a non-margin brokerage account IRA to buy treasuries at auction/stocks/etc., or even an IRA that holds precious metals ( american eagles - gold platinum and silver).
I'm not an accountant but I did go through this, so check with your 401k plan and see if you have any funds available to be withdrawn without penalty. One last thing. Nobody at my company seemed to know that this could be done, and it isn't advertised. I just happened to read some fine print on a mailer and called to ask the question. When they said yes I couldn't believe it. Give it a shot. Good luck.
-- Robert Michaels (firstname.lastname@example.org), November 19, 1998.