Printer Friendly

Cashing in A 401(k)? (Ask B.E.).

How do I go about cashing in my investments since I've been terminated from my job for a year, and I'm no longer contributing to the 401(k) plan?
--F Crisp
Via the Internet

If you've lost your job and still have investments in your former employer's 401(k) plan (or other retirement plan), don't be so fast to take a cash distribution. Remember, those funds may represent most of what you'll have to retire on, and taking a cash distribution before you reach age 59 1/2 means you open yourself up to major tax liabilities that will deplete the very money you want to use.

If you don't really have to use your retirement account, don't. When you cash out your 401(k) before age 59 1/2, you must pay federal income tax at your current tax rate, plus a 10% penalty--and your state may also require you to pay state taxes, as well. We encourage you to avoid cashing out because it can slice your retirement sum by as much as half. For example, if a person in the 31% tax bracket took the cash distribution of his $15,000 retirement account, he would walk away with $8,850 after taxes and the 10% penalty; leaving the money alone, at an 8% annual return over 30 years would yield more than $150,000.

Retirement plans held at a former employer can be rolled over into an IRA account without penalty, thus safeguarding a major source of your retirement income. If an absolute emergency makes it necessary to cash out of your retirement account, simply contact the human resources department of your former employer--which will have the proper paperwork for you to fill out--and in a month or less, you should be able to receive a check.

Mail your money management questions to Ask B.E. BLACK ENTERPRISE, 130 Fifth Ave., New York, NY 10011, or send an e-mail to
COPYRIGHT 2003 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2003, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Scott, Matthew S.
Publication:Black Enterprise
Article Type:Brief Article
Geographic Code:1USA
Date:Mar 1, 2003
Previous Article:Many happy tax returns: making these last minute adjustments could save you money. (Tax Strategies).
Next Article:Youth movement: firm provides research, training for teen programs. (Making It).

Related Articles
Conversion of unused vacation days into retirement plan contributions.
Getting started.
Know your true net worth: finding out how much you're worth is a major step toward building wealth. (Black Wealth Initiative).
FEI urges caution on 401(K) reform. (FEI News: Advocacy).
The single-participant 401(k): the who, what and why of this new benefit for small businesses.
Non-spouse beneficiaries of IRAs and 401(k)s.
Seeking greater yields.
Catching up on retirement.
QA: Retire on $3,000 a year?
Too much of a good thing: how to manage the pitfalls of company stock in 401(k)plans.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters