401k question

While this is possible- it must be an arms length transaction done by an authorized agent (there are lawyers who specialize in this and its a pretty hefty bill from them to set it up). And it must be strictly an investment property with all proceeds from such going back into the IRA. And you can never live on it or in it or use it for any recreation or relative etc.....401Ks cant do this obviously unless your company has a really weird 401K elective....

I might do a little checking on this, because there is a small chance this might work for me. I would have to roll it into an IRA first, but there is a possibility.

There's a 10% penalty and then you pay taxes on it at year end - unless yours is tax deferred.... Isn't there someone in your HR dept you can talk to? I agree with you on the stock market - I'm putting in the max and I'm losing it as fast as I'm putting it in..... I can stop my contributions while the market is so bad - but since you're leaving your job, you can't leave it there... See if you have someone at work that will explain the hardship withdrawals too - 3 reasons and buying your first home is one of them. Good luck!

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Listen to Michael W Smith. You will need this money some day unless you die young which none of us hope nor should we plan for. The fines are pretty significant. Much cheaper to take a loan from it- but be sure you'll be able to pay it back or there you are paying money just to get your money early! As Smith said if you hate the investments it is in (and if you left your company because it is doing poorly and much of your 401 is in the company itself, you are wise to hate them!) roll it over directly into an IRA which avoids any fines or taxes.

I use Vanguard since it's low cost but any mutual fund company will have the paperwork for you to do a roll over.

Can you borrow from IRAs?

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Everyone has offered excellent advice, and I'm no expert, but I'll throw a few thoughts out.

Do you need the entire amount all at once? If not, roll it into an IRA and take only as much as you need when you need it. The idea is not to increase your taxable earnings, which will increase your tax bracket. The examples given earlier (45% penalties) are not entirely accurate.
The IRS only charges penalty taxes of 10% on early distributions, but will also charge taxes at your current rate for the year that you distributed the money. Distributions from 401(k) is treated as taxable income. If your average income was $40k a year and you distribute $400k worth of a retirement account, I think it is safe to say you'll find yourself in a new tax bracket.

You can roll your 401(k) into a CD with a bank. The CD will be FDIC insured up to $250k only though (you can get around that by having IRAs at different banks), but the bank may let you take secured loans against the balance of your IRA, because it will be on a fixed asset.

How are away are you from retirement age? If you're only a few years away from 59 1/2, then it doesn't make sense to take a hit on penalties, when you can wait a few years, keep your money in a safer investment and then avoid the penalties.

If you're a first time homeowner, then I believe the IRS allows distributions, without penalties, of up to $10k. That may help you.

The IRS is currently allowing people to convert their Traditional IRAs into Roth IRAs regardless of income. This is pretty strong right now, because in the past if your Modified Adjusted Gross Income was too high you did not have the option to contribute to a Roth IRA and you could not convert your Traditional into one either.
You would have to pay taxes on the amount you convert, but they are allowing the taxes owed to be spread between 2011 and 2012.

The principal distributed from a Roth IRA is not taxed or penalized for distributions.
If someone owns their Roth IRA for five years or more, then the earnings are not taxed either. However, they can still be penalized for non-qualified distributions.
(Now this next part you may want to check with a tax adviser)
In theory, you could roll your 401(k) into a Traditional IRA, convert it to a Roth, pay the taxes over 2011 and 2012 (should be less than just distributing the whole amount), hold the Roth for five years and avoid a big chunk on taxes. Keep in mind if you roll it to a CD IRA with a bank they'll probably let you take a secured loan against it, so you would still have use of the balance (make sure you ask before you open the IRA with them).

Anyway, just a few thoughts...As I said, I'm no expert, but I'm hoping some of this helps.

There is also the math behind what you do with the money. If it's not going to be growing for years, and your paying interest on a mortgage, it could make decent sense to take the hit on tax and penalties, but make at least some of that back in paying off a mortgage and saving on the loan interest.

Do the math and see how it'll work out for you. Make an informed decision on the math, not on whacked out fear theories of the sky falling.

Currently I pay two low interest rate mortgage loans and stick every penny I can in 401k, Roth IRA and a money market account to boot because it grows at the same level or higher as the low interest rates I'm paying.

If I become unemployed cash flow is going to be an issue I'll immediately sell one place, use the equity and money from savings to pay off the other place and eliminate 100% of my debt. For me it makes sense not to cash in my 401k, but then I have other savings as I learned years ago to adjust my lifestyle so that I have at least some cash to save every month. Something every kid should be taught.

For the folks that think 401K's or other similar investments are gonna be there when the Boomers go bye.


How is the stock market/ bond market/ treasury market any different than the ponsi Social security is? They all rely on the next bigger sucker theory. Some one has to be willing to buy the junk you have put money into. No?
So where is the next generation gonna get the cash for these "investments"?



P.S. Over the long Haul the Stock market values go to nothing. Ask a GM stock holder.

Wow, what a thoughtful, insightful post...We should all pause a moment to bask in your brilliance.

Oh isn't that the truth.
The only reason the stock market is up in the 10K range, is because of the boomers 401K.
Just wait till those same boomers HAVE to take their 401's out of the market at the age of 70-1/2~!
The stock market will be at Half of what it is today~!
Yuppers when the baby boomers start pulling out of the market at 70-1/2 and that is law btw. The market will sink like a rock.
Oh their is people now entering the job force that are putting their money in as well, But not to the same degree as the boomers did. That is why the market will fall big time in just a few short years from now.

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You can be a lowly bank teller and be "in banking". Doesn't mean he's "a commercial banker".

If you leave your job to set out for new horizons, then you effectively have no income, thus a 0% tax bracket. You can take partial distributions with the thought of keeping that tax rate as low as possible.

I have taken the "contributed amount" out of my Roth IRA with no penalty at all. At 59 1/2 you can start taking the gravy, too.
As far as the market going to zero, you can always buy puts or short ETF's.

Distributions will be treated as income, so the OP would still be in a tax bracket...if he takes everything out, his tax bracket may increase if the amount distributed is high enough...Did the OP say he wasn't going to work anymore? Self-sufficient doesn't mean unemployed.

Puts are predicated on the greater sucker theory as well. So they are no different.

You live in a country based on capitalism...If the market goes away, then basically so does everything else...Then again, maybe that's what you're hoping for...

Nonsense. You cannot go short a stock in an IRA. Therefore, since you believe that the market is going to zero, you buy puts, which you can do. I'll tell you what is predicated on the greater sucker theory. Complaining that nothing works, and that everything is rigged.

Really? Where?

Is that what we have when the Government is saving the too big to fail?


Capitalism is a great system. Too bad we don't have it.

Why wouldn't you just sell the stock? A put is "value" insurance. No? Predicated on the fact that the sucker that bought the option still wants to buy. What pray tell happens if he doesn't?

If you invest in poorly run unprofitable companies sure... Go ask an Exxon stock holder and the answer will be different ...

There is a difference between gambling on stock prices, and holding solid company stocks for dividends etc. Either way if your not paying attention to the companies you are invested in your playing Russian roulette.

If you think the stock is going to zero, you wouldn't own the stock. In order to make money on a stock going to zero, you have to be short the stock, which you cannot do in an IRA. You buy puts, which you can do. A put is an investment, or bet, that the stock is going down. Anybody that owns a stock, and buys puts against it is an idiot. Why be long and short both??
lets say that I believe that the Bank of America is going bust. I look and see that January, 2012 puts, deep in the money have hardly any premium. So, I buy 25 strike puts which are 11.20. Right this second, the BAC stock is 13.92. If I were to cash in that put this moment, i would be selling the stock for 25. the actual price is 13.92 so I "make" 11.08. That means that there is 12 cents of time premium built into the put. I get 14 months for 12 cents. OK, lets say that sometime between now and the third Friday in January, 2012, BAC hits under $3.00 again, like it did in February, 2009. You can either sell your put, or exercise it. If you exercise it, you're selling the stock for $25, but only paying the 3.00 current price for it. you "make" $22 which is $10.80 profit. So, while the stock sells down, you are making a profit.