401K question

Roll it over

You could keep it where it is or roll it into an IRA - contact a financial planner or go an investment office that deals in IRAs. You could do a quick search - many mutual fund companies have retail offices in convienent locations. You could just walk off the street and talk with an investment advisor.

I work in the industry, but am not a finanacial advisor so I can't give you direct financial advice.

Depends. I had the option of keeping it where it was, and rolling it over. If I had had less than 5,000 in the fund, I would have been required to either cash out or do an IRA rollover. That was a condition of that particular plan document.

Completing the rollover process ultimately took over a month, with forms to be completed by both the former employer and myself. If you do the rollover now, it may expedite cashing out when you finally do so, at whatever.

Cashing out could also be an option. Withdrawals are taxed as ordinary income, unless you are in a Roth plan. If you anticipate higher income in the future, or higher tax rates at the time of withdrawal, it might be to your advantage to take the money and pay taxes now. If you are not 59 1/2 years old, the penalties on this option would be prohibitive, from a practical standpoint.

Another option is a trustee-to-trustee transfer. This is not considered a roll over. A roll over is when you actually receive the funds. Roll overs have conditions that have to be met. One is a 60 day deadline to roll over the funds from the time you receive the money. Another is a mandatory 20% tax withholding. In order not to be taxed or possibly penalized on the 20%, you must add that amount into the IRA. This is usually a surprise to people come tax time.

Not to me. I was braced for such an event.

Nice to see you gus

And you as well, TTH. Are you still into Republican fellatio, and, if so, may I change my political allegiance for a few minutes?

........as if I didn't know

I would not suggest cashing out - you are penalized as well as taxed. I've never heard of any financial planner or similiar ever suggest taking the cash - it just plain and simple is not a good decision.

If you plan is set up as such that you have to a roll over or cash it out, then go ahead and roll it over. Usually what you need to do is have the check written out to you and the IRA that you are rolling it into. When you go to set up the IRA, the advisor should tell you step by step what you need to do. If you go to an informed and helpful advisor, it should not take months. Mine was completed within a week. (however, it can depend on how long your company takes to write the check to the IRA and you).

With a rollover there is no tax penalty - believe me I work for a company that does this - and I've done it myself. The important thing is to get the clear instruction on how to have the check written so it is done as a rollover rather than a cash out.

If the person's mind is made up to move the funds into an IRA, then a transfer makes more sense.

Just make it clear that you want to transfer into an IRA where you will not be charged a penalty or taxed. The advisor should be able to tell precisely how to this and your rollover will not be taxed.

Linkat,
Yes there can be a penalty on a roll over when not completed by the time limit and like I said previously, there is a 20% withholding requirement. So, if the person doesn't contribute 20% into the IRA then it can be taxed and penalized.

Then this is not a rollover - this is a cash withdrawal and then a deposit into an IRA. Semantics I know but if you process a rollover as a rollover then there are no penalties or taxes charged.

Here is the blurb from my company's website explaining how you have the check addressed to avoid the 20% deduction...
"If a customer elects to have the distribution paid directly to him or her as opposed to XYZ bank as trustee of the IRA, the 20% will be withheld. "
As I was saying above you need to have the check addressed to both to rollover without being charged the deduction, however, as I also stated when you speak with the advisor, s/he will give you details on how to do this and when.

You might note that I took this into consideration. No penalty after age 59 1/2. Honest. Also, if you expect to need the money in the near future, you just might be in a position that your current tax situation might, and I say might , make cashing out not a viable option.

Yeah after 59 1/2 you are entitled for retirement and therefore no penalties.

Almost always a bad idea to get stuck with a penalty. Usually a bad idea when you can avoid the penalty. Financial planners with cookie cutter advice are always a bad idea. It was certainly not my option, but maybe for some. . . ?

True - there are always exceptions to the rule...