They won't let us take money out of 401(k)!greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
I filled out paperwork to withdraw 401(k) in its entirety. The company said that I can only take out money for the following reasons: 1. As a loan (which I DON'T want to do; why should I pay interest on my own money? Besides, you can only take out 1/2 of your account) 2. If you're over 59-1/2 (which I'm not) 3. If you're terminated or quit job (which I won't do) 4. Hardship reasons: foreclosure on home; substantial unpaid medical bills; purchase of first home. I would need paperwork to verify this, which I don't have because I do not fit into any of the categories.
Other than that, I can't withdraw my own money!!!! Has anyone else encountered this? Any suggestions?
-- Jill (email@example.com), February 05, 1999
Those are the rules...you must not have been briefed well... when you signed up did you have any other options? It's mandatory at some companies...
-- Shelia (firstname.lastname@example.org), February 05, 1999.
Jill, Are you able to direct or influence how your account is invested? If so, You may wish to check out a gold and silver bullion holding company listed on the American Stock Exchange with symbol CEF at www.centralfund.com Some folks are considering it for their IRA's
-- Watchful (email@example.com), February 05, 1999.
I'm pretty sure those are the standard rules regarding 401(K)s. This isn't anything new. I'm considering taking option 1 on my 401(K) in a couple of months. That would at least give me half my money, I'd be paying interest to myself (the interest goes back into my 401(K) along with the principal I'm repaying, which is good; the downside is that the loaned money isn't working for me (stocks/other investments) tax-free while I've got it), and I can repay the loan in its entirety anytime after 3 months - which I'll do on the off chance that Y2K turns out to be a ripple instead of a tidal wave.
Anyway, this isn't good news for you, but them's the rules...
-- Don (firstname.lastname@example.org), February 05, 1999.
Jill, This is not a decision of the companie you are working for it is the law and you signed up for it when you made the decision to join the 401k program. Face it, in order to get your money you will have to leave the company. Here is the problem though. If you take the money out of the program the company has to withhold a certain ammount of $$ by law. this can get real expensive. The same is true for profit sharing. For profit sharing it is 20% in NY-state and this only covers the fed. taxes you need to make sure that they do not withhold state taxes also and on top of all this there will be a fine for early withdraw. Over all this whole thing can cost you about 45-60% of the money you have in the bank depents on how your plan is set up and what state you live in. They make it this expensive on purpose to discurage people from withdrawing the money. The only way to get it out without any loss is to roll it over into an other approved retirement plan. If you believe that 01.01.2000 is the end of all then quit your job, take whats left after deductions and go on to the next thing on the list. Rickjohn
-- rickjohn (email@example.com), February 05, 1999.
I think there is a severe penalty if you should take your whole 401k. Best bet is to go with one half and pay yourself back. That way if anything happens , you still have half on your money. Some is better then none.
-- Linda A. (firstname.lastname@example.org), February 05, 1999.
I thought that one of the options was to roll it over to an IRA. Then you can liquidate but with a penalty. Am I wrong?
-- LM (email@example.com), February 05, 1999.
you cannot roll it anywhere until you terminate. At that point you can take it in cash, with a 10% penalty and taxes due, on the entire sum, in this years tax filing (Apr 00 or later, with extensions). Note that you have 60 days after you withdraw it to put it back without penalty (you can do this only once every 12 months)
-- a (firstname.lastname@example.org), February 05, 1999.
My plan is to borrow the full 50% I'm allowed and bury it somewhere. If I need it, I've got it. If I don't, I'm paying the interest to myself anyway, so what?
Of course, you can discontinue the plan now. What's in there stays there, but you can use the extra takehome for preparations. Later on, circumstances permitting, you can start back up again.
On a related note, the maximum number of exemptions you can declare is 10. I already did that. Remember that if there's still an IRS in a year (and I wouldn't bet against it) they'll want a big chunk of money all at once. Better have it ready.
-- Flint (email@example.com), February 05, 1999.
uh, Flint...when do you propose to implement this plan? Dec 99?
-- a (firstname.lastname@example.org), February 05, 1999.
Thanks for everyone's input. I am now leaning toward taking the half out as a loan. But a few posters have mentioned that they are "paying interest back to themselves." What does that mean? I thought the interest went to the custodian. Please enlighten me if I'm wrong here.
I had thought about the gold fund/shares option, but the 401(k) plan is with a major mutual fund company; we can only choose from stock & bond funds or money market funds, and they have to be in the same family of funds. I guess the two "safest" (relative term these days) would be the money market fund or U.S. Gov't fund, neither of which I'm comfortable with because I believe that y2k will be pretty bad.
-- Jill (email@example.com), February 06, 1999.
'a', I already maximized my exemptions. I cannot borrow from my 401 (k) until July. I've been praying that's not too late. I'll borrow the first day I can (the value of my plan dropped 40% this week alone. I'm glad I don't require it. Helpful, yes.)
-- Flint (firstname.lastname@example.org), February 06, 1999.
>But a few posters have mentioned that they are "paying interest back to themselves." What does that mean? I thought the interest went to the custodian. Please enlighten me if I'm wrong here.<
The interest that you pay goes into your account. It does not go to the custodian and it is your money. It is in effect an "extra" contribution to your account.
The "hooker" in all of this is that you are repaying the loan and the interest with "after tax" money. That is, you have already paid the taxes on the money that you are repaying the loan with, to include the interest. When you do finally cash out your 401k you pay taxes on the total amount cashed out. This means that you will have paid the taxes on that amount of money that you borrowed, and the resultant interest that you pay, at two times, as you repay the loan/interest and again at the final cashout. Are you loving any of this yet?
Oh, IIRC, the minimum time before you can repay the loan to the 401k is 1 year.
One last minor sniggle. You also will have the "opportunity" cost factor in this in that you will have "lost" the Time Value of the money that you borrowed because it won't be there to compound off of during the time that you are repaying the loan. This may not be of concern to you in light of the y2k thingy.
FWIW: In regards to the earlier post in reference to having 60 days to roll over the account: This is true. However, if the check is made out to you the company must withhold 20% of the amount withdrawn from the account and send it to Uncle sam. And, in addition to this, there is, of course, the little matter of any state tax that your state requires to be withheld.
So you end up with say 75% of the amount withdrawn.
However, should you then choose to roll over the 401k to an IRA, or into the 401k of your new employer, if the plan allows such, you MUST roll over the entire amount withdrawn from the original 401k to include the taxes withheld from it. If you just put the 75% of the original 401k into the new account you have made a premature partial withdrawal from the 401k and you will have to pay an additional 10% penalty on that amount when you file your taxes, if you are less than 59 1/2 years old when you made the withdrawal.
Standard disclaimers: I am the "Village Idiot". I am not now, nor have I ever been, even in any perceived past life, a real certified financial planner or consultant, nor am I a barrister, nor even a student of law, or of financial practices or procedures, and the above is my OPINION of the true stated laws, as my somewhat enfeebled and impaired mind has allowed me to ascertain that I might have interpreted them to be, as of the time that I thought I may be entitled to so state my opinion in regards to this matter.
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-- sweetolebob (email@example.com), February 06, 1999.
It's a royal rip-off the 401k system - this is why the stock market is trading on thin air at the moment - all the sheeple ploughing their money in month after month.
To get ny money I bit the bullit and resigned from my job - I will take a 20% hit up fron and pay state taxes. The extra 10% is not due until April 2000, by which time there may well be a flat tax - or not...
In the meantime I moved the money from Magellan (too risky IMHO now) and into an overnight money market account (where I worked we had six choices to shuffle the money to - this was the safest) - that's the best I could do to protect it.
Good luck, Andy
-- Andy (2000EOD@prodigy.net), February 06, 1999.
A big heads-up to anyone looking to close-out a 401k account:
I began my odyssey in June of 1998. Westport Trust is the name. Deception is their game.
Phone calls not returned - more than a dozen.
I was told by Westport Trust that I needed to furnish proof of hardship even though I had left my employer. False!
Distribution forms received by Westport Trust in late July.
Check received by me in November after pleading with anyone who would listen that I needed the money badly! This included a V.P. who insisted that I was not entitled to withdraw the money without proof of hardship!
Westport Trust did not follow my instructions as per the distribution form I submitted to them.
Bottom line: If you are going to make a move, do it now!
Best of Luck to All
-- Bingo1 (firstname.lastname@example.org), February 06, 1999.
All this tells me that I was right in my decision to not have a 401 (k). I don't LIKE the govt telling me how I can manage my money, and when and why I can withdraw it. Screw them.
-- Bill (email@example.com), February 06, 1999.
Like a lot of things in life, there's tradeoff's on 401K's. 401K's were never designed to be a semi-liquid savings account. Congress designed them to be very restrictive in nature because they are such a good deal, and intended as a supplement to SSA that you'll receive from the gov't.
I say that 401K's are a good deal for a reason. They are. But they're long term. And there are severe penalities for tapping into them before retirement because they are such a good deal. How can you argue with contributory matches (my employer matches mine $.50 on the dollar!) up to 6%, PLUS the investment return??
While I'm taking some money out of my bank account, and moving some around into more secure investments because of Y2K and my mixed feelings on financial markets in general, I think it's ludicrous to even be taking loans on your 401K (losing both the investment and in some cases contributory matches for 3 or 6 months). Leave it where it is. Keep a paper trail and use some common damn sense, please.
-- Jelly Bean (firstname.lastname@example.org), February 06, 1999.