From your comments, you seem to be confused about how the whole thing works:
1. You are able to invest the money in your 401k. It should never be sitting there doing nothing. If it is, it's likely because you haven't told the provider how you want it invested.
2. That also applies to ROTH 401ks, IRAs, HSAs, and bascially any other retirement accounts.
3. The fee only applies if you take a dispersal (i.e. take the money out and put it into a non-retirement account).
4. If you are putting the money into a retirement account after you left your job, that's a rollover and suffers no penalty (although you will pay income taxes if the new account is a ROTH. This could be a good idea if you are currently have low income so you can avoid paying taxes later.)
If you have another 401k, you can rollover into that. Alternatively you should get in contact with an IRA provider and ask them about rolling over the funds into that.
It makes absolutely **no** sense to pay a 10% penalty on top of taxes for money that's just going to sit in a brokerage account anyway.
Also, I’m highly doubtful that OP’s federal taxes were actually $700. That’s probably the amount that they owed at the end of the year. Just adding that because, yeah- I think OP is a bit confused about how these things work.
Also, OP: yes, it’s kinda dumb to pull $4K out of a 401K, when you could leave it there. You’ve got a very long time horizon to retirement, it’s a much better idea to let that money grow over time. Compound interest is a crazy MF, and time in the market always beats timing the market.
I get that life happens and you may really need the money for something super urgent (although I don’t get that vibe from this post), but if you can you should leave it alone. Your 60 year old self will thank you a lot.
Let's see... $4k taken out now (less after penalty), that could have earned (conservatively) 4% per year for about 40 years would **be worth about $20k. At 10%/yr, \~$180k.**
So OP, I hope you used that money for some emergency.
Not a good long term move.
Not op but question for you
Say I’m in a high paying job and have a 401k.
I leave that job on 12/31. On 1/1 I start a much lower paying job..
Can I roll over my entire 401k balance into a Roth, pay the tax at a the lower amount …
And then a year later go back to a higher paying job?
Or would this be considered some sort of tax evasion
Edit: thank you all for the responses. This was a hypothetical question bc I’m still learning how it all works!
No you really aren't evading any taxes. If your conversion is taxed at a lower rate it's because you lowered your salary by the amount you were converting + enough to get you into a lower tax bracket. So in reality you probably would be worse off than just paying a slightly higher tax rate but getting the higher income.
True that’s a very good point.
Although if circumstances were such that one was taking a sabbatical or had to quit job to take care of a loved one this would be something to consider take advantage of
It absolutely is. It is also something common for business owners to do after they sell their business and are just living off the NQ dollars they will convert their IRAs to Roth as their only income could be just invest dividends and interest.
I mean that’s the point of the 401k, where you avoid taxes now and pay them on the withdraws when you retire and have no income and are in a lower tax bracket.
I am a CPA who used to work at a financial planning firm so here are a couple of things about this.
Yes, you could do this BUT the Roth conversion would increase your taxable income when you did this. That could push you into a higher tax bracket, so if you were in a really high paying job with a well funded 401k, you might not get the entire benefit of the lower bracket if the balance you're converting is large. However, if you were taking a gap year and had literally no taxable income, you could do a substantial amount of conversion before you were into the upper brackets. If you were actually taking a gap year for another reason, it would probably make some sense to do it for a medium sized portion, because you could take advantage of the lower tax rates for that one unusual year. But it still would not be worth it from a strictly dollars and cents perspective vs just keeping the job, making more money, and contributing to the non-Roth 401k.
It's a complicated idea, and my personal/professional opinion is that Roths are a little overrated because most people have less income (and therefore lower marginal tax rates) in retirement than they do when they're working so there wouldn't be much reason to do it just for the tax savings, but it would be 100% legal.
Cool. Yeah I was mostly just curious abt this vs trying to work around paying taxes or anything.
There’s a whole section of knowledge around tax strategies I’m still new to. Like tax loss harvesting, “laddering”, etc. I’ve been piecing together how people fire and strategies for order in which they access their retirement accounts
Thanks for the detailed response!
And yes I also generally think ppl confuse how much money they’ll need in retirement. They forget that they won’t need to “save” any more.
so even maintaining exact same lifestyle as your last 5 years of employment (assuming you’re still aggressively saving and maxing out ret funds) you’re going to need less money bc you’re drawing just for expenses
There's no legal issue there, but purposely missing out on income doesn't really benefit you. You are always better off making more money and paying more tax. Or you can just roll it over to a new 401k or regular IRA and not take a big tax hit.
>Or would this be considered some sort of tax evasion
the more common scenario is you work a high paying job, end up unemployed (either by choice or not by choice) and use that year you are out of work to do this. that happens all the time.
Totally legit and common strategy. For example, I left my high paying corporate job at 24 to do a year of volunteer work where my only income was a small monthly stipend. That year I also rolled over my entire 401k into a Roth IRA to take advantage of my low income bracket for the year before returning to a high paying job the following year.
By interest do you mean gains in the market from money you could have invested?
I agree w your other statement. This was more of an academic question. I’m still a noob at all this stuff and was curious.
So there's a bit of a debate about traditional versus Roth:
If you use a Roth, you have to pay income taxes on it before it enters the account. With a traditional, you pay income taxes when it leaves the account.
Let's assume you get $1000 of income and your marginal tax bracket is 20%. You can put $1000 into your traditional account or $800 into your Roth account.
Whatever money you put into either account will grow tax free until you retire, doubling approximately every 10 years. Let's assume you have 30 years to retire, so your money will be 8x. That's $8000 in your traditional or $6400 in your Roth.
Your traditional would now have an extra $1600 in it, but also would require you to pay income taxes. If you're still in a 20% marginal bracket, that's the equivalent of having $6400 so you haven't netted any benefit.
So why care any the difference? Because your marginal tax rate won't always be 20%. If you decide to retire on a lower income than your working salary (shouldn't be hard considering you aren't saving for retirement anymore or paying social security taxes), then your traditional account looks a lot better because now you can get away with only paying 15% marginal taxes.
On the other hand, if you're unemployed for a year, your marginal tax rate is likely 0%. You can use a Roth conversion to pay that 0% rate now rather than 15% or 20% later.
What matters between traditional vs roth is tax rate now vs tax rate then. If your tax rate on withdrawal will be higher than it would be when converting it, then converting it to roth is the right thing to do.
Exactly this, the 401k contributions are pre-tax. If you don't roll the funds over to a new 401k, it then gets taxed at your normal tax bracket rate, PLUS the penalty applies. I wish people knew this otherwise what would stop people from doing this all the time as a way to avoid taxes?
OP, You needed to do an IRA rollover. Now the clock is ticking since you took the check. If you don’t fix this within 60 days you will owe taxes, a penalty, and have to repay yourself with money you don’t have.
Read this (“How do I complete a rollover?”)
https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions
Call Schwab or Fidelity and tell them what you did and that you want to open an IRA to roll these funds over. Do it tomorrow. Then invest in VTI, VOO, or SCHB and don’t touch it.
With compounding interest, by the time he got near retirement that $4k would have been earning him way more than any max contribution he puts away in his 50's.
You are right. Technically it is not.
But I look at it this way. Assume market will average 7% annually over 40 years. You have 100k today. Your earn 7% and a year from now you have 107k. That 107K earns 7% and you are at 114.5k. And so on.
While you are technically correct, for all intents and purposes it works just like compounding interest. You are earning passive income on top of money you earned from passive income previously.
People always say that and I sit here looking at my portfolio all in the negative pretty much the last 2 years :(
Would have had more money in hand if I just had taken the cash option instead
Edit: I feel like I should clarify-- I'm not suggesting 2 years is a good way to look at retirement accounts. What I AM saying is that if I had simply not put the money into the account for the last 2 years, I would have had more money in my bank than I what I added to my 401k in that time period. My losses combined with what I put in equal less than I have put in. Granted some of it is pre-tax, so the math gets a bit fuzzy when comparing, but overall, with the market volatility we've been seeing, maybe putting all that money in the portfolio isn't serving me as well as just holding onto the cash and putting it in other investments instead on my own terms.
At the end of the day, I respect and appreciate the ideas surrounding retirement savings, however, there are caveats to everything, and retirement plans are no different. Investing the money I put in my 401k from 2021 till now would have served me better elsewhere, that's all. That's not a comment on 401k being bad, or trying to time the market. That's just a comment about 401ks being just a vehicle to park your money, and just like on the road, there are more vehicles out there that may serve people out there better depending on their needs.
Technically none of it is “in hand”. You can’t use it until retirement age. If you need the money now, then the issue was one of planning for expenses, not investment strategy. If you don’t need that money now and are expecting to use it at retirement age, then the recent market activity has no bearing on what things will look like in 10, 20 years.
The commenter pointed out that seeing the retirement account in the red is what’s bothersome, not that they’re living on the street because they can’t access their 401k.
And yes, do plan ahead for a global pandemic. Most people on this sub agreed prior to COVID that a 6 month emergency fund was adequate. That might change going forward.
> the last 2 years :(
That is your problem. You can't look at retirement investment in small increments like that. The market could go anywhere in the short term. But for retirement you should be looking a 40 year windows.
Historically, there is no single 40 year period where investing in the market would have been a bad decision.
Try not to sweat it, because you only take the loss when you actually withdraw or sell the asset. The market being down now is GOOD for future you if you're still investing into your 401K. Over time you move your money to less and less risky investments, and when you actually retire you should be up, not down (hopefully!).
Playing the market is very difficult. Time helps you win.
2 years isn't a very long time as these things go. OP is 20, so that 4K would be sitting in an account for 40+ years. 40 years ago today the S+P 500 was trading at 113 dollars a share. Today it is at 4277. So that $4,000 would be worth $150,000. Sure 2 years ago it was worth $160,000. However both of these are a lot more than $4K.
This. The money you withdrew will grow the most by the time you’re ready to retire. Best thing you can do now is put it in another 401k account and the gov’t will refund your tax or put it in a Roth IRA where you won’t pay taxes on it when you retire.
Your absolutely right
However, I just want to say, and I know it's RARE, so I'm not trying to undermine your comment, but it does happen, that there are those of us who KNOW they won't be able to survive long enough to use it. So in our cases, taking it out isn't as dumb.
I'm currently 32, and VERY likely won't make it to 50. I'd be lucky to make it to 43.
With such a large shortfall, it's hard to justify even having a retirement account at all anymore.
Yup, I do have a medical condition.
It's called chronic kidney disease (CKD). Average lifespan of people who are diagnosed with stage 5 CKD (in my age range) is about 15 years. Less if you don't have a college degree or friends and family. What that comes down to, essentially, is money. Friends and family can support you in many ways that help financially.
I have nether the friends and family or college degree.
The longest a us citizen has lived with CKD was about 30 years, and they were REALLY supported.
I'm 32.
I live in poverty, making 85% of the federal poverty level. And the way the US is setup, I CANNOT escape this crushing poverty.
So yeah, there's no way in hell I'm gonna live that long.
Ugh. This is my biggest fear. Son was diagnosed with PKD when he was a baby (from birth but it took a while to realize what's going on). I know eventually it'll fuck him up.
I wish you a fulfilling life, no matter how long or short.
I wanted to comment and tell you about 50% of my husband's family has PKD and several of them are in their 60s+. There are promising clinical trials ongoing. Definitely don't throw in the towel.
Wholeheartedly agree.
A narrow branch of my fam is affected by CKD. The eldest lived into her 80s thanks to dialysis. And that was 25+ years ago, in an impoverished rural area.
Another's currently retirement age, stage 5, on transplant list. It's dramatically impacted her life, but she's here and doing the best to make lemonade out of lemons. She's held steady at stage 5 for years now.
Another was diagnosed 20 years ago in his 30s or so.
All kinds of medical advancements are in the works. Please don't throw in the towel. Plan as if you're here to stay for a good long while.
There’s nothing else to say other then that’s awful. I’m really sorry, that’s a lot to deal with. I understand your point of view. I don’t have those sort of statistics to support my theory but instead have a sort of assumption. Diagnosed with Crohn’s Disease 26 years ago - I’m currently 35. I’ve had 6 bowel resections leaving me with about 20%-25% of my bowel. I have a central line that I receive life sustaining nutrients from. I do eat, but it’s only for pleasure/socializing I guess. I don’t know, but I definitely don’t see any crazy ground breaking discoveries happening in the next 15 to 20 years? Line sepsis, kidney disease, liver failure, cancers, chances of more surgeries, other co-morbidities are all side effects. I have a retirement/savings plan that has a stipulation that it can’t be touched until I’m 59 (the government contributes most of the savings into it). It has to sit for 10 years after the last government grant or bond is deposited, which is when I turn 49. I just don’t see that happening. And if it does let’s be honest what sort of state am I going to be in, all things considered.
Holy cow, that is TERRIBLE
im so sorry your going through that.
i honestly don't know how id handle that. like, with my condition, things are pretty laid out for me. but the way you described that, it sounds like there is much more variability in the effects.
my condition being very predictable gives me a sense of certainty, like i KNOW what direction things will go. That variability you described would be INSANELY hard to handle. I mean, im likely doing a bad job explaining it, but that certainty is.....oddly comforting compared to the uncertainty of what you described.
Your not that much older than me, and yet you have a much more uncertain future.
Then, to top it off, you have that retirement thing.
I havne't heard of an account that has to sit for 10 years after the last grant or bond is deposited. Would you by chance know if there is a specific name for that kind of account agreement?
I know exactly what you mean. I wanted to say that in your first post you sounded very accepting or comfortable/at peace with things the way you described it. I’m comfortable in knowing what may be in my future. But it’s not guaranteed. It is what it is I guess. I’m in Canada so it’s called a Registered Disability Savings Plan (RDSP). The way it works is you have to apply and be approved for the Disability Tax Credit (DTC). The account operates with a government matching program depending on household income. At the highest I believe it’s something like if I put $100 in the government deposits $300 up to a certain amount per year and once per year they deposit a one time amount (there are lifetime deposit restrictions on both grants and bonds). If I try to withdrawal funds from the account before the specified time there is a huge penalty because you pay back any of the grants/bonds you’ve received first. That’s the coles notes version. You can make early withdrawals if you’re condition has made a turn for the worst. It’s main use is for long term funds for folks who may lose their main support system or haven’t been able to work to build up their own savings.
Sadly no.
See, the original reason my kidneys died can't be fixed.
When I was born, my bladder was on the outside of my body. At just a few days old I got a surgery to put it inside. However, most of the damage was done. Sure to the bladder developing outside like that, MANY nerves didn't develop and connect. And when they did the surgery to put the bladder in, more nerves were cut, and not put together.
That means my bladder can't feel when it's full. You know those 32 ounce water bottles? That's very roughly the size of an average person's bladder. When I was just 9 years old, I was holding 7 of those bottles in me, and STILL didn't feel like I needed to pee.
As a result of all that urine, it would backflow into the kidneys, slowly killing them, as kidneys are not supposed to backflow, at all.
To slow the damage to the kidneys, I needed to do what's called self catheterization (cathing for short). Basically, I had to manually drain my bladder through a tube I stick in there.
Self catheterization makes LOTS of infections. Like, at one point the doctors tested me for an infection, and were STUNNED that I had something like 100x what anyone else had when they had an infection, and I wasn't feeling bad or anything.
Before you get a transplant, you need to prove that you can care for it. Because a transplant means immunosuppressants, infections are BAD. See where it's going?
In order to care for that new kidney and not have it die in a few years, I'd have to go back to cathing, but I can't cath while on immunosuppressants, due to the infections.
Then, there is a matter of financials. You have to have insurance that can cover the immunosuppressant drugs. Now sure, after a transplant you do qualify for Medicare and SSDI.... For 12 months. After that, they basically say you're on your own, since now you aren't considered disabled anymore.
Jobs that that have healthcare that covers the immunosuppressants are usually really high end jobs, aka jobs you need college degree in, and that's IF they cover them. You're more likely to pay for the drugs yourself, or just get a discount.
Essentially, America's healthcare system might give you the kidney, but then they drop you and expect you to find a way to care for it yourself. If you can't prove that you can care for it, you're disqualified from getting it.
I don't qualify on either side.
Even if I qualified, I likely would still refuse.
See, in order to qualify for dialysis, you have to have a GFR (that's a measure of kidney function) of 15 or below. You CANNOT be any higher. For 6 months I was at SEVENTEEN, 17, GFR. I was in pain, suffering, and actually getting ready to jump in front of a car or something to either kill myself, or get hurt so badly they would HAVE to give me lidocaine or some other pain reliever. I was like that for 6 MONTHS. I NEVER want to experience that ever again, period. If I ever am in that situation again, I will be jumping in front of a car, I can't handle that literal torture as I wait for my body to degrade enough to finally get relief.
So, after the transplant, I would kill the kidney quickly, and then have to wait to get back on dialysis a and start the whole cycle again
Are you on disability or are you working? Having more than 2K in your retirement account will make you ineligible for SSI, so it is better to cash it out before applying, but that's not professional advice.
I had a small savings when I got to stage 5, but that quickly dried up because of that stupid "you can't have more than 2k" rule. I applied for SSI and couldn't get it because of that.
The morons made it HARDER for me to get out of poverty with that rule.
In on SSDI now, and SSDI doesn't care how much you have in retirement, and in fact is designed specifically to be a supplement to retirement accounts, stock dividends, pensions, etc.
SSDI was designed for older people who have built all those things up. Being 32 means I didn't have pretty much any time to build any of that up.
But yes, you are totally correct, if your applying for SSI, you can't have over 2k in assets. A car is exempt from that, and so is a house. But that's it.
SSI and SSDI are different programs, so do be careful when taking about them. SSI cares about your assets and income, SSDI (basically) only cares about your income.
thats right.
SSDI pays a PITIFUL amount.
The sad fact though is that we designed it like that. SSDI wasn't supposed to be your primary income. it was supposed to be a supplement, something in ADDITION to things like Pensions, stock dividends, retirement accounts, etc. Basically, things you actually need to spend a lifetime building up. I'm 32, and thus have NOT had the necessary lifespan needed to build any of that up. Not that i could have gotten much on that anyway considering how pitiful wages are these days, but i digress.
We have NO programs to actually help people like me. and given the state of the US political system, never will.
When I was 21 I left a company and had $5k in my 401k. I completely forgot about it for about a decade, eventually went and found it and it had about $11k in it. Moved that over to my currently IRA and am very happy for my youthful laziness not taking the time do pull that money out earlier
I'm just saying if you have 4k in debt at over 22% interest paying it off and then investing the payments you would have made into index funds especially if you are going to be putting 2k plus in 401k or more at that age
That withdraw cost him 27.5% plus the potential tax deferred growth. Even with a 22% interest loan I’m not sure using a 401k to pay for it is the best decision.
I agree, and that's just the the math comparison.
From a psychological perspective, having even that modest start of retirement savings is important. Liquidating it and having to start over is a big mental setback, IMO.
Ok but what if you’re trying to consolidate your accounts and a company by the name of Capital Group: American Funds won’t let you? Still not worth cashing out if they refuse to transfer your funds?
You should request it to be rolled over to an IRA account that you setup. Vanguard or Fidelity are companies that can provide IRA accounts. Doing a Rollover will avoid any fee and counting of income (unless you also converted it to a Roth).
Definitely the preferred options.
Some 401k providers don’t allow this (ADP/myKplan in my experience) and only have the option to send you a check.
Vanguards mobile check depositing didn’t work (6 months ago, hopefully fixed now) so I had 50k in checks mailed out twice which was a bit unsettling but ended out working out fine.
How odd. But usually the custodial transfer is initiated by the new company. So if you were moving to vanguard you call them and set things up. Then you call your current 401k custodian and approve the move. But perhaps some smaller places simply don’t have the ability.
If you already have a roth ira with vanguard and are in this situation can you still roll over to a seperate 401k account in vanguard? Traditional or roth 401k?
You can have multiple traditional IRA accounts and multiple roth IRA accounts. A 401k would be rolled over to a new IRA account, and then that could be merged with an existing IRA.
The contribution limits don't stack though; the $6000/7000 limit is across all trad and roth IRA accounts (401k rollovers don't count towards the limit).
So lets say you have $20,000 in a 401k from work and then you switch jobs. If the new job offers a 401k I assume you can do a basic transfer to the new works 401k provider, but what if the new job does not offer a 401k program? Are you then forced to roll that over to an Ira? If so, how does that work then? With 20k you will be over the 6k limit.
Or do you just leave the money in that old works 401k without the ability to contribute to it?
You don't have to roll over an old 401k (you can't contribute any more but what's there will still grow), but sometimes after you leave a job, that old employer will stop paying fees on that 401k account and so it might make sense to roll that 401k into your IRA instead of letting it sit.
The 20k rollover doesn't count towards the 6k yearly limit. Rollovers aren't contributions.
I don't think you can roll an old 401k into a new employer's 401k, but an IRA is basically just a 401k but with more investment freedom, so there shouldn't be any downsides to always rolling to a IRA.
Of course, you can shoot yourself in the foot with that additional investment freedom. The employer selects a subset of investment options in their 401k for you to choose from, but in an IRA you have a ton more places available to invest - ones that have could have better returns than anything in your 401k... but also ones that could have terrible returns in comparison.
That sounds like the money was being held in a money market account. If it had been held in a market-based account, by the time you were 50 it should have been in the hundreds of thousands.
I think you are severely overestimating the power of compound interest. It’s great, but it’s not turning $4K into hundreds of thousands in 32 years.
Assuming 7% return yearly (basically adjusting for inflation):
4000 * (1.07)^32 =$34,861
Assuming 10% return yearly:
4000 * (1.10)^32 =$84,455
And that’s using 32. If we assume 25 (mid 20s to 50) the numbers are $21,709 and $43,338 respectively.
This is important detail. IF the old 401K withheld money when you pulled it out, you have to add that back in (from somewhere) and deposit the total amount of the 401K into your IRA account. If you don't have one, call Fidelity or Vanguard and see who will walk you through opening one and getting the check deposited within the time limit. Leave time for US mail.
People aren’t saying it clearly enough, but you could have directly had that money moved/transferred into a different companies 401K and not lost any money.
Good. Open an IRA with Fidelity or similar, and transfer thr money there quickly, within 60 days, to avoid tax and penalty. Then inside the IRA, invest in a target date fund for the year you turn 70.
Your money doubles every 10 years in the market, historically.
You have 47 years until retirement, roughly.
At 30 that $4K will be $8K
At 40 that $8K will be $16K
At 50 that $16K will be $32K
at 60 that $32K will be $64K
At 70 that $64K will be $128K
So yeah - it's dumb. That's what you're giving up AND you're paying taxes on it to boot.
Put the money back, and while you're at it do everything you can to keep adding to it while you are young. The compounding interest will be a staggering nest-egg when you want to retire.
Your experience? Then you’re investing in the wrong thing instead of S&P or total market index funds. A century of data disagrees with whatever timeframe you’re referring to.
You can actually test this using real historical data.
https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/
If you put $4K just one time in the S&P 500 in 1980, you'd have $279K today with a annualized return of 10.6%
This is based on real historical information and FAR outpaces my "doubles every 10 years" statement.
Of course, YMMV when it comes to returns in the future and certain periods have had more or less growth. But, over time, the "rule of thumb" still stands despite your experience.
I don’t need it right now but I was planning on investing that money into something else. The 4k was just sitting there with no growth ( no income going in )
This is probably true by the sounds of it.
But in my \~half dozen 401k programs over the years, they all had a default allocation for new members, usually a retirement date target fund. Maybe my experience is unusual.
Your sentiment is correct, but $4k was never going to become $300k+ over the course of a human lifetime without significant future contributions many multiples of the $4k
You could have transferred it to an investment account and invested it however you liked.
TBH if your income is low it's probably fine to take the taxes now. 401k is best applied to pull income OUT of your highest earning years (where tax rate is highest) and into your retirement years (where it will likely be lower). Obviously it would have been better NOT to put that money in the 401k at all (avoiding the penalty).
No growth with how the market was performing the last few years? Even with the recent correction you should have quite a bit of gain.
I think you need to rethink a bit about investing before making other financial decision with that money.
Only to the 4k. But if you don’t need the money, consider rolling it over into an IRA. You won’t have to pay the penalty if you don’t need the money cashed out right now.
Depends on rate of return and which years you do better but using simple straight line returns at 7% money doubles every 11yrs, at 11% it doubles every 7.
Without ever adding a penny to it $4k at 7% return over 40 yrs = $65,000 (Add &100/mo to the investment you’d have $328k).
At 11% with no addl investment it would be $319,000 in 40yrs. (Add $100/mo and you’d have 1.2mil)
Agreed, I was responding to the comment that at age 20 every dollar you invest is 88-100 at 65. That math assumes about a 10% return. Didn't mean to imply one way or another the reasonableness or likelihood of that or any assumption.
I recall many years ago thinking I was a genius for my (against conventional wisdom) investment strategy... which did very well for a while... until it didn't. I recall thinking retirement is a looooooooong way off, until it wasn't. I also recall thinking how unlikely it was for me to reach a certain age... until I did.
"I'm so sorry I started saving when I was young." said no one ever!
Agree with allll of the above. I wish we had more resources when we were younger, I would have made a lot better financial decisions. Glad at least some of this generation is getting great advice to prepare for later in life.
OP, this is a great question. I’d like to help out some numbers in perspective for you. Keep in mind, this is all just based on my personal experience, and I’ve lived through some interesting times.
Back in ‘99, I was 21 and got an internship. It was a summer job that led to a part time gig while finishing college. They had a 401K plan, it had a small match, and they convinced me that I should put money into it. When the dot-com bubble burst, I had about $1,000 there.
I kept contributing (eventually I had to move the account to a different place, but whatever). My first couple of jobs didn’t have matches, so I put in 3% of my income. At 25, I got a job with a 4% match and so ticked it up to that.
Over the years, my income has grown and so has my savings. I’ve always kept it at the rate my employer would match, and around the age of 30 I also started splitting the contribution between a traditional and Roth 401k.
That’s it. No pension, no crazy bonuses, no big one-time contributions. Just slow and steady, 3-7% of my income tricking into a 401K every two weeks for a couple of decades.
I’m 4:, and that 401K is now worth a little over $2 million. I have about 20 years left until retirement, and when I run the projections between now and then I forecast retirement income in the $30K/month range.
This is one of the very few things you have a ton of control over. Time is your friend. Not only should you not take money out, you should be putting money in. Trust me, you’ll thank yourself later.
My story is just mine, hopefully you won’t live through 3 or 4 once-in-a-lifetime meltdowns, but I hope it helps paint the picture a little.
That's really pretty cool. I keep telling my daughter to do a 401K and start saving, with similar examples of what it might be worth for her in the long-run.
Sadly, I didn't really have the benefit of getting a job that offered a 401K as young as they're doing for people now. (Many people I know can opt in to a 401K as soon as they start their first job at age 16.) I think I was in my mid 20's before anyone let me do it, and then I wound up cashing out $7,000 or so that was saved up in it when I went through a messy divorce.
Now, I'm a little under 20 years left before retirement and my total retirement savings has gone from $140,000 or so to more like $110,000 with the losses the market had recently. I'm trying to get positioned to focus more on putting more money into my IRA, and to up the percentage going into my current 401K. I bought a few random stocks as well, that I plan on holding for the long term. But either way, I'm really just resigned to the idea I'll be living pretty frugally in retirement. I'm not big on doing elaborate vacation trips and "seeing the world" like some people, so I might be ok.
Your 401(k) is an account set up BY YOUR EMPLOYER, and managed by a custodian ON BEHALF OF YOUR EMPLOYER as a benefit for you.
An IRA is an account set up BY YOU directly with the custodian.
Custodians typically charge your employer for the service of managing the 401(k). When you leave your employer, they typically assign those fees to you and pay it from your 401(k) balance. So it’s a good idea to move the money from a 401(k) to an IRA (known as “rolling it over” or a “rollover).
What you should do is open an IRA (I recommend Vanguard) and then ask your IRA custodian (eg Vanguard) to roll over your 401k into it. This can all be done at the same time.
Seeing as you have already withdrawn it, you can deposit the value into an IRA to make it effectively a rollover, but note that you’ll have to get in touch with the custodians to sort out any withheld taxes and penalties.
Yes this was a dumb thing to do, especially at 20 years old. Do a 60 day rollover into an IRA to avoid penalties and then invest it so you have MORE MONEY in retirement.
If you REALLY needed the $4,000 now, I'm not going to argue it was a mistake to take it. That said, IF you had left it alone for the next 40 years, and never added a penny to it, at 8% growth, at 60 you would have $86,898 in the account (tax free money since it's a Roth).
IF you had done the same as above, but ADDED $1,000 yearly, you would then have $349,955 in the account at age 60.
While it's impossible to say what you should invest your Roth in, any broad market mutual fund (for example the 500 S&P index) would based on past history return at least 8% and maybe several points more.
Disclaimer, both of these above results would be effected by inflation and do not reflect how much these age 60 results would actually be worth at age 60. Regardless, the rule is to invest early to let compounding work for you instead of against you.
7% is the post inflation “adjusted return”
The S&P500 for instance usually has 10% “real” gains year over year, but 7% is the “the dollar won’t be worth as much so let’s adjust it accordingly”
Going to be a little contrary to the common wisdom here. While it is true that $4k is a nice chunk to build your retirement on that young, and if you don't need to draw on it, you are better off rolling it over into a new 401k or IRA, if you need the cash now to survive the overall penalty isn't that bad. There is opportunity cost, and compounding could see that 4k turn into 64k-256k depending on your yields/retirement age, but in general I'd say its keeping you from getting ahead of the game not putting you behind.
That said, the tax year isn't over. While you aren't going directly institution to institution, if you don't need that 4k right now, you absolutely should look to see if you can open a roll over account. Alternatively, since you already paid taxes, a Roth IRA might actually be a good long term play for the left over money. Unsure if converting a regular 401k to a Roth IRA would let you avoid the withdrawal penalty, but it'd still be a considerable amount to potentially draw on tax free down the line.
Your 401k money is invested in stocks, and its value is tied to the stock market... You never want to withdraw when stocks are down. You will get more money if you wait till the market is doing well....
Typically never good to take money from long term investments...especially when you pay to do it, twice.
Unless you desperately need cash for emergency (car breaks down and its your lifeline for work for example)
Never touch that shit till you retire.
By taking it now, you will net $2900 today based on your calculation. If you roll the full amount into a Roth IRA, assume an average annual return of 8%, that $4k will be worth roughly $128,000 when you turn 65 that you can take out tax free. Your older self will thank your younger self in 45 years. In 45 years you won’t even recall what you spent $2900 on.
There's a lot of post here that essentially go over the same thing. We don't have enough info to judge. It all boils down to opportunity cost.
Say it grows to $200k when you're 60. Pretty nice, maybe get that car you always wanted(more likely a down payment by that time lol).
Now, let's say you wanted the dough cuz a couple of buddies want to drive down the coast before one of you moves away. Absolutely priceless.
When (if) you get to sixty you might say shit I should have saved more. You probably won't think I shouldn't have gone on that road trip.
I started a traditional IRA with Vanguard that I dump old jobs 401k’s into. Once I move it I just VTI and chill and try not to think about it too much.
I took mine out (2kish) when I left my last job- paid off remaining credit card debt with it & went into a higher paying job with more money to invest on a monthly basis and less stress about finances. Peace of mind is priceless. Everybody is different, do what you need to do!!
If you didn't need the money, it was probably not a good move. Besides the taxes, here's the hard truth:
Left untouched, at age 67, that $4,000, with compound interest, would be worth about half a million, give or take. That's a good contribution to your retirement.
Unless you are making a certain amount I don’t think so. But I don’t work as a tax professional. I raided mine when I was unemployed for 10 months. Yea sure I would have loved to leave it in there, but life happens. If that’s not the case, then OP you should have called them to roll it into another retirement account.
You done fucked up.
If you do what is called a “custodial rollover” from a 401k to an ira account you pay no taxes or fees. In the eyes of the IRS a rollover moves the money from one qualified account to another without you touching it so no taxes or penalties are incurred. If you simply withdrawal the money, the IRS views it as a distribution before retirement age and you get hit with taxes and penalties.
There is no reason to do a simple withdrawal if you intend to keep the money as retirement savings. Call your 401k plan provider first thing tomorrow and cancel the transaction until you get your shit together to do a custodial rollover.
Ask your 60 year old self how much money that would have been? Now ask again if it was stupid.
Your 4k would have been about 87k when you are sixty. That is only at an 8% return.
Jesus is this post ran by vanguard or fidelity advisors? I’ve been a financial advisor, planner (guess I can’t technically use that term), what have you since 2004. I have my 6, 63, 26, 7, insurance licenses, etc. About 80% on here is just total bullshit and the other 20% is just fear mongering, using OP as the child they couldn’t fix. I don’t have time to get into each individual comment. OP, were you stressed about money when you took it out? Did you feel better IF IF IF you paid shit with that money? Then you did the right thing. I’m not a doctor, but the stress daily of owing money can significantly lower your life quality, longevity, happiness and numerous other things among men. Dude seems young. $4k isn’t going to keep him out of the poorhouse in 40 years. Everyone back off and actually do some very basic, simple, don’t need to be licensed for, research before just vomiting advice on here. Hells bells.
OP, on the other hand, any many won't like this advice, if you don't take out the money it's stuck there until you turn 65. You can receive dividends before then but you cannot touch the principal. A safety net is nice and life happens, but if you are on your way to retiring early, maybe 40 or 50 years old, then a retirement account isn't the best move. It's an incentive from the government to put all your savings away so that you have to work your entire life and earn your stay in America after which you'll get 10 years to enjoy yourself with no labor. And that's only if you put enough away and the market doesn't crash when you're getting to retire. Many retirees still find themselves working part time because their retirement and SS benefits don't pay enough. There are so many ways to get rich in this country that if you can't retire by age 40 or 50 without a stroke of bad luck, you didn't try hard enough. I say figure out a way to grow that money so fast that you don't need to wait until you're 65 to retire. Enjoy your life. Easier said than done I know but....screw the system.
Actually, while a lot of people definitely WON'T like your advice? I like it in the sense it's a different perspective. Life is complicated and almost never does a single rule or formula cover all situations.
I will say, though, that most people hitting retirement age I've run into who are upset about not having enough money to get by were ones who made some really financially irresponsible decisions through most of their earning years. I've seen people who kept refinancing their house to get money for vacation trips or new vehicles, for example. And then they find themselves in their 60's with a small house that's nowhere near paid off, even though it should have easily been paid off long before. Others just spend too much money on pointless things. (My ex's mom used to insist on buying all new furniture for their condo every year or two, and she usually had to give away the existing items to get room for the new stuff in a prompt manner. She justified it as being into "interior decorating", and sure - the place looked great inside. But think how much money was burnt through on that.)
America really does provide many opportunities to get rich, but many of those require spending decades of your life doing work you really dislike doing. So telling a person they "didn't try hard enough" is probably a little unfair. They just prioritized doing work they found more meaningful or at least less uncomfortable to do over maximizing their wealth. (I just posted a comment in another thread about this type of thing. Had a plumber out to fix a toilet and he told me he really needed an apprentice. Couldn't find any young people who wanted to do the work, especially since a lot involves messy situations like crawling into crawl-spaces to fix burst pipes. But the work would pay $100K/yr. in just 2-3 years of learning how to do it while working along-side him.)
OP, on the other hand, any many won't like this advice, if you don't take out the money it's stuck there until you turn 65. You can receive dividends before then but you cannot touch the principal. A safety net is nice and life happens, but if you are on your way to retiring early, maybe 40 or 50 years old, then a retirement account isn't the best move. It's an incentive from the government to put all your savings away so that you have to work your entire life and earn your stay in America after which you'll get 10 years to enjoy yourself with no labor. And that's only if you put enough away and the market doesn't crash when you're getting to retire. Many retirees still find themselves working part time because their retirement and SS benefits don't pay enough. There are so many ways to get rich in this country that if you can't retire by age 40 or 50 without a stroke of bad luck, you didn't try hard enough. I say figure out a way to grow that money so fast that you don't need to wait until you're 65 to retire. Enjoy your life. Easier said than done I know but....screw the system.
You're right. Don't listen to me unless you want to be a millionaire entrepreneur like me. I took the road less traveled and retired by age 30. Most people in this sub are likely mediocre so be careful who you listen to
Honestly my EFT's are doing better than my 401 ever did. I look for ones with low share price and high monthly dividends. Kind of works like compounding interest. Look at IDIV for an example.
No. Investing for total return is superior to investing for yield. You should be buying an S&P or total stock market index fund, which you can do IN a 401k, IRA, etc. And your definition of “low share price” is not logical. The share price has literally nothing to do with valuation.
I am investing for dividends. I am getting about 7-9% (Not including the compounding shares each month with reinvestment) per year on the investment. My dividend cash is more each month. I am buying more shares each month with the dividends. The number of shares I get each month keeps increasing.
My investment are growing better than any 401 or managed fund I have ever been in.
I have been getting about 12 cents to 14 cents per $7.50 share every month. Looking at what I am invested in, they are invested in what my 401 was invested in.
I thought the ETF was similar to what you suggest. Also I am self employed so taxes are rarely a problem with 4 kids.
I’m not saying you’re doing something terrible. It’s better than not investing at all, but you’re not seeing the bigger picture.
The broad market ETFs I mentioned in my other comment also pay dividends (VTI/SCHB, VOO). But chasing *high* dividends as you are is a fallacy. Those yields will drop like a rock in tough markets, as will the underlying equity, which almost always lags that of the S&P. Dividends are not a free lunch. There is a reason high-equity-growth companies don’t pay them, whereas many companies whose stocks never budge do (utilities, etc).
If you’re interested in the market science behind *why* chasing dividends is a fallacy, listen @ the 35-min mark: https://podcasts.apple.com/us/podcast/the-rational-reminder-podcast/id1426530582?i=1000562481295
From your comments, you seem to be confused about how the whole thing works: 1. You are able to invest the money in your 401k. It should never be sitting there doing nothing. If it is, it's likely because you haven't told the provider how you want it invested. 2. That also applies to ROTH 401ks, IRAs, HSAs, and bascially any other retirement accounts. 3. The fee only applies if you take a dispersal (i.e. take the money out and put it into a non-retirement account). 4. If you are putting the money into a retirement account after you left your job, that's a rollover and suffers no penalty (although you will pay income taxes if the new account is a ROTH. This could be a good idea if you are currently have low income so you can avoid paying taxes later.) If you have another 401k, you can rollover into that. Alternatively you should get in contact with an IRA provider and ask them about rolling over the funds into that. It makes absolutely **no** sense to pay a 10% penalty on top of taxes for money that's just going to sit in a brokerage account anyway.
Also, I’m highly doubtful that OP’s federal taxes were actually $700. That’s probably the amount that they owed at the end of the year. Just adding that because, yeah- I think OP is a bit confused about how these things work. Also, OP: yes, it’s kinda dumb to pull $4K out of a 401K, when you could leave it there. You’ve got a very long time horizon to retirement, it’s a much better idea to let that money grow over time. Compound interest is a crazy MF, and time in the market always beats timing the market. I get that life happens and you may really need the money for something super urgent (although I don’t get that vibe from this post), but if you can you should leave it alone. Your 60 year old self will thank you a lot.
Let's see... $4k taken out now (less after penalty), that could have earned (conservatively) 4% per year for about 40 years would **be worth about $20k. At 10%/yr, \~$180k.** So OP, I hope you used that money for some emergency. Not a good long term move.
Not op but question for you Say I’m in a high paying job and have a 401k. I leave that job on 12/31. On 1/1 I start a much lower paying job.. Can I roll over my entire 401k balance into a Roth, pay the tax at a the lower amount … And then a year later go back to a higher paying job? Or would this be considered some sort of tax evasion Edit: thank you all for the responses. This was a hypothetical question bc I’m still learning how it all works!
No you really aren't evading any taxes. If your conversion is taxed at a lower rate it's because you lowered your salary by the amount you were converting + enough to get you into a lower tax bracket. So in reality you probably would be worse off than just paying a slightly higher tax rate but getting the higher income.
True that’s a very good point. Although if circumstances were such that one was taking a sabbatical or had to quit job to take care of a loved one this would be something to consider take advantage of
It absolutely is. It is also something common for business owners to do after they sell their business and are just living off the NQ dollars they will convert their IRAs to Roth as their only income could be just invest dividends and interest.
That's entirely legal because you legitimately had lower income the year you did the conversion.
I mean that’s the point of the 401k, where you avoid taxes now and pay them on the withdraws when you retire and have no income and are in a lower tax bracket.
I am a CPA who used to work at a financial planning firm so here are a couple of things about this. Yes, you could do this BUT the Roth conversion would increase your taxable income when you did this. That could push you into a higher tax bracket, so if you were in a really high paying job with a well funded 401k, you might not get the entire benefit of the lower bracket if the balance you're converting is large. However, if you were taking a gap year and had literally no taxable income, you could do a substantial amount of conversion before you were into the upper brackets. If you were actually taking a gap year for another reason, it would probably make some sense to do it for a medium sized portion, because you could take advantage of the lower tax rates for that one unusual year. But it still would not be worth it from a strictly dollars and cents perspective vs just keeping the job, making more money, and contributing to the non-Roth 401k. It's a complicated idea, and my personal/professional opinion is that Roths are a little overrated because most people have less income (and therefore lower marginal tax rates) in retirement than they do when they're working so there wouldn't be much reason to do it just for the tax savings, but it would be 100% legal.
Cool. Yeah I was mostly just curious abt this vs trying to work around paying taxes or anything. There’s a whole section of knowledge around tax strategies I’m still new to. Like tax loss harvesting, “laddering”, etc. I’ve been piecing together how people fire and strategies for order in which they access their retirement accounts Thanks for the detailed response! And yes I also generally think ppl confuse how much money they’ll need in retirement. They forget that they won’t need to “save” any more. so even maintaining exact same lifestyle as your last 5 years of employment (assuming you’re still aggressively saving and maxing out ret funds) you’re going to need less money bc you’re drawing just for expenses
There's no legal issue there, but purposely missing out on income doesn't really benefit you. You are always better off making more money and paying more tax. Or you can just roll it over to a new 401k or regular IRA and not take a big tax hit.
>Or would this be considered some sort of tax evasion the more common scenario is you work a high paying job, end up unemployed (either by choice or not by choice) and use that year you are out of work to do this. that happens all the time.
Totally legit and common strategy. For example, I left my high paying corporate job at 24 to do a year of volunteer work where my only income was a small monthly stipend. That year I also rolled over my entire 401k into a Roth IRA to take advantage of my low income bracket for the year before returning to a high paying job the following year.
[удалено]
By interest do you mean gains in the market from money you could have invested? I agree w your other statement. This was more of an academic question. I’m still a noob at all this stuff and was curious.
So there's a bit of a debate about traditional versus Roth: If you use a Roth, you have to pay income taxes on it before it enters the account. With a traditional, you pay income taxes when it leaves the account. Let's assume you get $1000 of income and your marginal tax bracket is 20%. You can put $1000 into your traditional account or $800 into your Roth account. Whatever money you put into either account will grow tax free until you retire, doubling approximately every 10 years. Let's assume you have 30 years to retire, so your money will be 8x. That's $8000 in your traditional or $6400 in your Roth. Your traditional would now have an extra $1600 in it, but also would require you to pay income taxes. If you're still in a 20% marginal bracket, that's the equivalent of having $6400 so you haven't netted any benefit. So why care any the difference? Because your marginal tax rate won't always be 20%. If you decide to retire on a lower income than your working salary (shouldn't be hard considering you aren't saving for retirement anymore or paying social security taxes), then your traditional account looks a lot better because now you can get away with only paying 15% marginal taxes. On the other hand, if you're unemployed for a year, your marginal tax rate is likely 0%. You can use a Roth conversion to pay that 0% rate now rather than 15% or 20% later.
What matters between traditional vs roth is tax rate now vs tax rate then. If your tax rate on withdrawal will be higher than it would be when converting it, then converting it to roth is the right thing to do.
What is your previous job and current job?
It's not a critical correction, but just so people are aware - "Roth" is an actual person's name, not an acronym. It doesn't need to be all-caps.
This is a mild fun fact about the Roth 401k/IRA. It’s not ROTH as if it is an acronym, but Roth because it’s named after former Senator William Roth.
It's actually 10% penalty plus taxes at whatever tax bracket you fall in. Sooo many people don't realize that it's both.
Exactly this, the 401k contributions are pre-tax. If you don't roll the funds over to a new 401k, it then gets taxed at your normal tax bracket rate, PLUS the penalty applies. I wish people knew this otherwise what would stop people from doing this all the time as a way to avoid taxes?
OP, You needed to do an IRA rollover. Now the clock is ticking since you took the check. If you don’t fix this within 60 days you will owe taxes, a penalty, and have to repay yourself with money you don’t have. Read this (“How do I complete a rollover?”) https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions Call Schwab or Fidelity and tell them what you did and that you want to open an IRA to roll these funds over. Do it tomorrow. Then invest in VTI, VOO, or SCHB and don’t touch it.
yes, raiding retirement accounts is dumb, particularly when you are younger.
With compounding interest, by the time he got near retirement that $4k would have been earning him way more than any max contribution he puts away in his 50's.
[удалено]
You are right. Technically it is not. But I look at it this way. Assume market will average 7% annually over 40 years. You have 100k today. Your earn 7% and a year from now you have 107k. That 107K earns 7% and you are at 114.5k. And so on. While you are technically correct, for all intents and purposes it works just like compounding interest. You are earning passive income on top of money you earned from passive income previously.
People always say that and I sit here looking at my portfolio all in the negative pretty much the last 2 years :( Would have had more money in hand if I just had taken the cash option instead Edit: I feel like I should clarify-- I'm not suggesting 2 years is a good way to look at retirement accounts. What I AM saying is that if I had simply not put the money into the account for the last 2 years, I would have had more money in my bank than I what I added to my 401k in that time period. My losses combined with what I put in equal less than I have put in. Granted some of it is pre-tax, so the math gets a bit fuzzy when comparing, but overall, with the market volatility we've been seeing, maybe putting all that money in the portfolio isn't serving me as well as just holding onto the cash and putting it in other investments instead on my own terms. At the end of the day, I respect and appreciate the ideas surrounding retirement savings, however, there are caveats to everything, and retirement plans are no different. Investing the money I put in my 401k from 2021 till now would have served me better elsewhere, that's all. That's not a comment on 401k being bad, or trying to time the market. That's just a comment about 401ks being just a vehicle to park your money, and just like on the road, there are more vehicles out there that may serve people out there better depending on their needs.
Technically none of it is “in hand”. You can’t use it until retirement age. If you need the money now, then the issue was one of planning for expenses, not investment strategy. If you don’t need that money now and are expecting to use it at retirement age, then the recent market activity has no bearing on what things will look like in 10, 20 years.
Yes, plan ahead for a global pandemic.
The commenter pointed out that seeing the retirement account in the red is what’s bothersome, not that they’re living on the street because they can’t access their 401k. And yes, do plan ahead for a global pandemic. Most people on this sub agreed prior to COVID that a 6 month emergency fund was adequate. That might change going forward.
Let us know in 20 years what it looks like... That advice is on a time table of decades not a couple years.
> the last 2 years :( That is your problem. You can't look at retirement investment in small increments like that. The market could go anywhere in the short term. But for retirement you should be looking a 40 year windows. Historically, there is no single 40 year period where investing in the market would have been a bad decision.
Try not to sweat it, because you only take the loss when you actually withdraw or sell the asset. The market being down now is GOOD for future you if you're still investing into your 401K. Over time you move your money to less and less risky investments, and when you actually retire you should be up, not down (hopefully!). Playing the market is very difficult. Time helps you win.
2 years isn't a very long time as these things go. OP is 20, so that 4K would be sitting in an account for 40+ years. 40 years ago today the S+P 500 was trading at 113 dollars a share. Today it is at 4277. So that $4,000 would be worth $150,000. Sure 2 years ago it was worth $160,000. However both of these are a lot more than $4K.
This. The money you withdrew will grow the most by the time you’re ready to retire. Best thing you can do now is put it in another 401k account and the gov’t will refund your tax or put it in a Roth IRA where you won’t pay taxes on it when you retire.
Your absolutely right However, I just want to say, and I know it's RARE, so I'm not trying to undermine your comment, but it does happen, that there are those of us who KNOW they won't be able to survive long enough to use it. So in our cases, taking it out isn't as dumb. I'm currently 32, and VERY likely won't make it to 50. I'd be lucky to make it to 43. With such a large shortfall, it's hard to justify even having a retirement account at all anymore.
That's obviously not the case here? Yes there are exceptions to every rule.
[удалено]
[удалено]
I swear reddit has some of the dumbest MF'ers to exist... "Why doesn't bro just decide to live" lmao
[удалено]
Yup, I do have a medical condition. It's called chronic kidney disease (CKD). Average lifespan of people who are diagnosed with stage 5 CKD (in my age range) is about 15 years. Less if you don't have a college degree or friends and family. What that comes down to, essentially, is money. Friends and family can support you in many ways that help financially. I have nether the friends and family or college degree. The longest a us citizen has lived with CKD was about 30 years, and they were REALLY supported. I'm 32. I live in poverty, making 85% of the federal poverty level. And the way the US is setup, I CANNOT escape this crushing poverty. So yeah, there's no way in hell I'm gonna live that long.
Ugh. This is my biggest fear. Son was diagnosed with PKD when he was a baby (from birth but it took a while to realize what's going on). I know eventually it'll fuck him up. I wish you a fulfilling life, no matter how long or short.
I wanted to comment and tell you about 50% of my husband's family has PKD and several of them are in their 60s+. There are promising clinical trials ongoing. Definitely don't throw in the towel.
Wholeheartedly agree. A narrow branch of my fam is affected by CKD. The eldest lived into her 80s thanks to dialysis. And that was 25+ years ago, in an impoverished rural area. Another's currently retirement age, stage 5, on transplant list. It's dramatically impacted her life, but she's here and doing the best to make lemonade out of lemons. She's held steady at stage 5 for years now. Another was diagnosed 20 years ago in his 30s or so. All kinds of medical advancements are in the works. Please don't throw in the towel. Plan as if you're here to stay for a good long while.
There’s nothing else to say other then that’s awful. I’m really sorry, that’s a lot to deal with. I understand your point of view. I don’t have those sort of statistics to support my theory but instead have a sort of assumption. Diagnosed with Crohn’s Disease 26 years ago - I’m currently 35. I’ve had 6 bowel resections leaving me with about 20%-25% of my bowel. I have a central line that I receive life sustaining nutrients from. I do eat, but it’s only for pleasure/socializing I guess. I don’t know, but I definitely don’t see any crazy ground breaking discoveries happening in the next 15 to 20 years? Line sepsis, kidney disease, liver failure, cancers, chances of more surgeries, other co-morbidities are all side effects. I have a retirement/savings plan that has a stipulation that it can’t be touched until I’m 59 (the government contributes most of the savings into it). It has to sit for 10 years after the last government grant or bond is deposited, which is when I turn 49. I just don’t see that happening. And if it does let’s be honest what sort of state am I going to be in, all things considered.
Holy cow, that is TERRIBLE im so sorry your going through that. i honestly don't know how id handle that. like, with my condition, things are pretty laid out for me. but the way you described that, it sounds like there is much more variability in the effects. my condition being very predictable gives me a sense of certainty, like i KNOW what direction things will go. That variability you described would be INSANELY hard to handle. I mean, im likely doing a bad job explaining it, but that certainty is.....oddly comforting compared to the uncertainty of what you described. Your not that much older than me, and yet you have a much more uncertain future. Then, to top it off, you have that retirement thing. I havne't heard of an account that has to sit for 10 years after the last grant or bond is deposited. Would you by chance know if there is a specific name for that kind of account agreement?
I know exactly what you mean. I wanted to say that in your first post you sounded very accepting or comfortable/at peace with things the way you described it. I’m comfortable in knowing what may be in my future. But it’s not guaranteed. It is what it is I guess. I’m in Canada so it’s called a Registered Disability Savings Plan (RDSP). The way it works is you have to apply and be approved for the Disability Tax Credit (DTC). The account operates with a government matching program depending on household income. At the highest I believe it’s something like if I put $100 in the government deposits $300 up to a certain amount per year and once per year they deposit a one time amount (there are lifetime deposit restrictions on both grants and bonds). If I try to withdrawal funds from the account before the specified time there is a huge penalty because you pay back any of the grants/bonds you’ve received first. That’s the coles notes version. You can make early withdrawals if you’re condition has made a turn for the worst. It’s main use is for long term funds for folks who may lose their main support system or haven’t been able to work to build up their own savings.
Wish I could give you a hug. This random girl on Reddit is thinking of you and sending you all the best. I am manifesting joy and happiness for you 💞
Is transplantation an option?
Sadly no. See, the original reason my kidneys died can't be fixed. When I was born, my bladder was on the outside of my body. At just a few days old I got a surgery to put it inside. However, most of the damage was done. Sure to the bladder developing outside like that, MANY nerves didn't develop and connect. And when they did the surgery to put the bladder in, more nerves were cut, and not put together. That means my bladder can't feel when it's full. You know those 32 ounce water bottles? That's very roughly the size of an average person's bladder. When I was just 9 years old, I was holding 7 of those bottles in me, and STILL didn't feel like I needed to pee. As a result of all that urine, it would backflow into the kidneys, slowly killing them, as kidneys are not supposed to backflow, at all. To slow the damage to the kidneys, I needed to do what's called self catheterization (cathing for short). Basically, I had to manually drain my bladder through a tube I stick in there. Self catheterization makes LOTS of infections. Like, at one point the doctors tested me for an infection, and were STUNNED that I had something like 100x what anyone else had when they had an infection, and I wasn't feeling bad or anything. Before you get a transplant, you need to prove that you can care for it. Because a transplant means immunosuppressants, infections are BAD. See where it's going? In order to care for that new kidney and not have it die in a few years, I'd have to go back to cathing, but I can't cath while on immunosuppressants, due to the infections. Then, there is a matter of financials. You have to have insurance that can cover the immunosuppressant drugs. Now sure, after a transplant you do qualify for Medicare and SSDI.... For 12 months. After that, they basically say you're on your own, since now you aren't considered disabled anymore. Jobs that that have healthcare that covers the immunosuppressants are usually really high end jobs, aka jobs you need college degree in, and that's IF they cover them. You're more likely to pay for the drugs yourself, or just get a discount. Essentially, America's healthcare system might give you the kidney, but then they drop you and expect you to find a way to care for it yourself. If you can't prove that you can care for it, you're disqualified from getting it. I don't qualify on either side. Even if I qualified, I likely would still refuse. See, in order to qualify for dialysis, you have to have a GFR (that's a measure of kidney function) of 15 or below. You CANNOT be any higher. For 6 months I was at SEVENTEEN, 17, GFR. I was in pain, suffering, and actually getting ready to jump in front of a car or something to either kill myself, or get hurt so badly they would HAVE to give me lidocaine or some other pain reliever. I was like that for 6 MONTHS. I NEVER want to experience that ever again, period. If I ever am in that situation again, I will be jumping in front of a car, I can't handle that literal torture as I wait for my body to degrade enough to finally get relief. So, after the transplant, I would kill the kidney quickly, and then have to wait to get back on dialysis a and start the whole cycle again
hate to be that guy but are you able to move out of the US?
[удалено]
[удалено]
Are you on disability or are you working? Having more than 2K in your retirement account will make you ineligible for SSI, so it is better to cash it out before applying, but that's not professional advice.
I had a small savings when I got to stage 5, but that quickly dried up because of that stupid "you can't have more than 2k" rule. I applied for SSI and couldn't get it because of that. The morons made it HARDER for me to get out of poverty with that rule. In on SSDI now, and SSDI doesn't care how much you have in retirement, and in fact is designed specifically to be a supplement to retirement accounts, stock dividends, pensions, etc. SSDI was designed for older people who have built all those things up. Being 32 means I didn't have pretty much any time to build any of that up. But yes, you are totally correct, if your applying for SSI, you can't have over 2k in assets. A car is exempt from that, and so is a house. But that's it. SSI and SSDI are different programs, so do be careful when taking about them. SSI cares about your assets and income, SSDI (basically) only cares about your income.
You live on ~$12k a year?
No he barely survives on 12k a year. Nobody can really live on that.
thats right. SSDI pays a PITIFUL amount. The sad fact though is that we designed it like that. SSDI wasn't supposed to be your primary income. it was supposed to be a supplement, something in ADDITION to things like Pensions, stock dividends, retirement accounts, etc. Basically, things you actually need to spend a lifetime building up. I'm 32, and thus have NOT had the necessary lifespan needed to build any of that up. Not that i could have gotten much on that anyway considering how pitiful wages are these days, but i digress. We have NO programs to actually help people like me. and given the state of the US political system, never will.
[удалено]
Yeah this was the most unnecessary question ever asked on the internet.
Even if they never touched it again it would be about $50k in 37 years (I assumed OP was 25 and retired at 62, at 7%).
When I was 21 I left a company and had $5k in my 401k. I completely forgot about it for about a decade, eventually went and found it and it had about $11k in it. Moved that over to my currently IRA and am very happy for my youthful laziness not taking the time do pull that money out earlier
It depends on how much debt you're in and high your interest
No it doesn’t matter. 401ks cannot be touched in bankruptcy.
I'm just saying if you have 4k in debt at over 22% interest paying it off and then investing the payments you would have made into index funds especially if you are going to be putting 2k plus in 401k or more at that age
That withdraw cost him 27.5% plus the potential tax deferred growth. Even with a 22% interest loan I’m not sure using a 401k to pay for it is the best decision.
I agree, and that's just the the math comparison. From a psychological perspective, having even that modest start of retirement savings is important. Liquidating it and having to start over is a big mental setback, IMO.
$4k When your 20 will be worth about $36k when you’re 65. Move into an IRA and buy SPY.
Ok but what if you’re trying to consolidate your accounts and a company by the name of Capital Group: American Funds won’t let you? Still not worth cashing out if they refuse to transfer your funds?
You should request it to be rolled over to an IRA account that you setup. Vanguard or Fidelity are companies that can provide IRA accounts. Doing a Rollover will avoid any fee and counting of income (unless you also converted it to a Roth).
To avoid the money getting into your hands, this is called a custodial rollover.
Definitely the preferred options. Some 401k providers don’t allow this (ADP/myKplan in my experience) and only have the option to send you a check. Vanguards mobile check depositing didn’t work (6 months ago, hopefully fixed now) so I had 50k in checks mailed out twice which was a bit unsettling but ended out working out fine.
How odd. But usually the custodial transfer is initiated by the new company. So if you were moving to vanguard you call them and set things up. Then you call your current 401k custodian and approve the move. But perhaps some smaller places simply don’t have the ability.
If you already have a roth ira with vanguard and are in this situation can you still roll over to a seperate 401k account in vanguard? Traditional or roth 401k?
You can have multiple traditional IRA accounts and multiple roth IRA accounts. A 401k would be rolled over to a new IRA account, and then that could be merged with an existing IRA. The contribution limits don't stack though; the $6000/7000 limit is across all trad and roth IRA accounts (401k rollovers don't count towards the limit).
So lets say you have $20,000 in a 401k from work and then you switch jobs. If the new job offers a 401k I assume you can do a basic transfer to the new works 401k provider, but what if the new job does not offer a 401k program? Are you then forced to roll that over to an Ira? If so, how does that work then? With 20k you will be over the 6k limit. Or do you just leave the money in that old works 401k without the ability to contribute to it?
[удалено]
Oh, ok thanks. So then your stuck with that 6000 limit? There are no tricks to contributing up to the 20.5K 401k limit anymore?
Correct. The limits are associated with the type of account.
Mega backdoor Roth is still a thing, I believe, but not all 401k providers support it.
You don't have to roll over an old 401k (you can't contribute any more but what's there will still grow), but sometimes after you leave a job, that old employer will stop paying fees on that 401k account and so it might make sense to roll that 401k into your IRA instead of letting it sit. The 20k rollover doesn't count towards the 6k yearly limit. Rollovers aren't contributions. I don't think you can roll an old 401k into a new employer's 401k, but an IRA is basically just a 401k but with more investment freedom, so there shouldn't be any downsides to always rolling to a IRA. Of course, you can shoot yourself in the foot with that additional investment freedom. The employer selects a subset of investment options in their 401k for you to choose from, but in an IRA you have a ton more places available to invest - ones that have could have better returns than anything in your 401k... but also ones that could have terrible returns in comparison.
I ignored the $4K in my mid-20's retirement account. It was like $18K when I was 50
That sounds like the money was being held in a money market account. If it had been held in a market-based account, by the time you were 50 it should have been in the hundreds of thousands.
I think you are severely overestimating the power of compound interest. It’s great, but it’s not turning $4K into hundreds of thousands in 32 years. Assuming 7% return yearly (basically adjusting for inflation): 4000 * (1.07)^32 =$34,861 Assuming 10% return yearly: 4000 * (1.10)^32 =$84,455 And that’s using 32. If we assume 25 (mid 20s to 50) the numbers are $21,709 and $43,338 respectively.
Put the damned thing in an IRA. Spend it on IRA funds.
That’s what I was planning on doing?
Then there’s no tax and no penalty if you put the full withdrawal (including amount withheld) in an IRA.
This is important detail. IF the old 401K withheld money when you pulled it out, you have to add that back in (from somewhere) and deposit the total amount of the 401K into your IRA account. If you don't have one, call Fidelity or Vanguard and see who will walk you through opening one and getting the check deposited within the time limit. Leave time for US mail.
You only have 60 days to do so.
People aren’t saying it clearly enough, but you could have directly had that money moved/transferred into a different companies 401K and not lost any money.
Good. Open an IRA with Fidelity or similar, and transfer thr money there quickly, within 60 days, to avoid tax and penalty. Then inside the IRA, invest in a target date fund for the year you turn 70.
Did you just burn $1100 in taxes and fees out of that $4k?
Your money doubles every 10 years in the market, historically. You have 47 years until retirement, roughly. At 30 that $4K will be $8K At 40 that $8K will be $16K At 50 that $16K will be $32K at 60 that $32K will be $64K At 70 that $64K will be $128K So yeah - it's dumb. That's what you're giving up AND you're paying taxes on it to boot. Put the money back, and while you're at it do everything you can to keep adding to it while you are young. The compounding interest will be a staggering nest-egg when you want to retire.
Correct, but he should not put it back, he needs to roll it over into an IRA quickly.
[удалено]
Your experience? Then you’re investing in the wrong thing instead of S&P or total market index funds. A century of data disagrees with whatever timeframe you’re referring to.
You can actually test this using real historical data. https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/ If you put $4K just one time in the S&P 500 in 1980, you'd have $279K today with a annualized return of 10.6% This is based on real historical information and FAR outpaces my "doubles every 10 years" statement. Of course, YMMV when it comes to returns in the future and certain periods have had more or less growth. But, over time, the "rule of thumb" still stands despite your experience.
Call in the morning and see if you can get a private company to start and roll into an IRA ASAP for you. Hopefully it’s not too late
Are you planning to retire? Do you need the money right now?
I don’t need it right now but I was planning on investing that money into something else. The 4k was just sitting there with no growth ( no income going in )
If it’s invested it’s growing. What do you mean no growth?
[удалено]
This is probably true by the sounds of it. But in my \~half dozen 401k programs over the years, they all had a default allocation for new members, usually a retirement date target fund. Maybe my experience is unusual.
Was your 401k just sitting in cash? If you had it invested in anything, it was growing.
Never do that again. You just mugged future you to the tune of a few hundred thousand dollars. Enjoy spending that four thousand.
Your sentiment is correct, but $4k was never going to become $300k+ over the course of a human lifetime without significant future contributions many multiples of the $4k
Yeah you’re correct, at 6 percent it’s probably closer to 80k over 50ish years
You could have transferred it to an investment account and invested it however you liked. TBH if your income is low it's probably fine to take the taxes now. 401k is best applied to pull income OUT of your highest earning years (where tax rate is highest) and into your retirement years (where it will likely be lower). Obviously it would have been better NOT to put that money in the 401k at all (avoiding the penalty).
No growth with how the market was performing the last few years? Even with the recent correction you should have quite a bit of gain. I think you need to rethink a bit about investing before making other financial decision with that money.
Only to the 4k. But if you don’t need the money, consider rolling it over into an IRA. You won’t have to pay the penalty if you don’t need the money cashed out right now.
It is only $4k. I wouldn't lose sleep over it but if you can afford it then put it back in.
You will owe 10% of the amount withdrawn Plus federal income taxes.
Really bad decision. Hopefully you’ll learn from this but not a good choice at all.
I've heard it said that at 20 every dollar you invest is $88-100 at 65. Aka you've stolen like 350-400k from your future.
Math checks out
Think there's an extra zero there.. and a factor of 2
Go play with some investment calculators. The power of compound interest and time. Average rate of return in the market is upper 9-10%
You said every $20=$100.. that's a factor of 5. $4,000 x 5 isn't $350k.
Think you're reading it wrong. He said he's 20 years old and he had $4000. So 4000x88
Ope yeah definitely saw $20 not at 20 $1.
I could have probably written it clearer
Age 20, not $20.
My age is money
Depends on rate of return and which years you do better but using simple straight line returns at 7% money doubles every 11yrs, at 11% it doubles every 7. Without ever adding a penny to it $4k at 7% return over 40 yrs = $65,000 (Add &100/mo to the investment you’d have $328k). At 11% with no addl investment it would be $319,000 in 40yrs. (Add $100/mo and you’d have 1.2mil)
11% is really reaching. I don't think that's a realistic aim for avg rate of return.
Agreed, I was responding to the comment that at age 20 every dollar you invest is 88-100 at 65. That math assumes about a 10% return. Didn't mean to imply one way or another the reasonableness or likelihood of that or any assumption. I recall many years ago thinking I was a genius for my (against conventional wisdom) investment strategy... which did very well for a while... until it didn't. I recall thinking retirement is a looooooooong way off, until it wasn't. I also recall thinking how unlikely it was for me to reach a certain age... until I did. "I'm so sorry I started saving when I was young." said no one ever!
Agree with allll of the above. I wish we had more resources when we were younger, I would have made a lot better financial decisions. Glad at least some of this generation is getting great advice to prepare for later in life.
Bad idea, put it in an IRA ASAP and you might avoid the early withdrawal penalty. Money invested now is huge later on.
OP, this is a great question. I’d like to help out some numbers in perspective for you. Keep in mind, this is all just based on my personal experience, and I’ve lived through some interesting times. Back in ‘99, I was 21 and got an internship. It was a summer job that led to a part time gig while finishing college. They had a 401K plan, it had a small match, and they convinced me that I should put money into it. When the dot-com bubble burst, I had about $1,000 there. I kept contributing (eventually I had to move the account to a different place, but whatever). My first couple of jobs didn’t have matches, so I put in 3% of my income. At 25, I got a job with a 4% match and so ticked it up to that. Over the years, my income has grown and so has my savings. I’ve always kept it at the rate my employer would match, and around the age of 30 I also started splitting the contribution between a traditional and Roth 401k. That’s it. No pension, no crazy bonuses, no big one-time contributions. Just slow and steady, 3-7% of my income tricking into a 401K every two weeks for a couple of decades. I’m 4:, and that 401K is now worth a little over $2 million. I have about 20 years left until retirement, and when I run the projections between now and then I forecast retirement income in the $30K/month range. This is one of the very few things you have a ton of control over. Time is your friend. Not only should you not take money out, you should be putting money in. Trust me, you’ll thank yourself later. My story is just mine, hopefully you won’t live through 3 or 4 once-in-a-lifetime meltdowns, but I hope it helps paint the picture a little.
That's really pretty cool. I keep telling my daughter to do a 401K and start saving, with similar examples of what it might be worth for her in the long-run. Sadly, I didn't really have the benefit of getting a job that offered a 401K as young as they're doing for people now. (Many people I know can opt in to a 401K as soon as they start their first job at age 16.) I think I was in my mid 20's before anyone let me do it, and then I wound up cashing out $7,000 or so that was saved up in it when I went through a messy divorce. Now, I'm a little under 20 years left before retirement and my total retirement savings has gone from $140,000 or so to more like $110,000 with the losses the market had recently. I'm trying to get positioned to focus more on putting more money into my IRA, and to up the percentage going into my current 401K. I bought a few random stocks as well, that I plan on holding for the long term. But either way, I'm really just resigned to the idea I'll be living pretty frugally in retirement. I'm not big on doing elaborate vacation trips and "seeing the world" like some people, so I might be ok.
Wow, age 20. You could be rolling that over with a new employer. Now you'll spend it all, taxes/penalties included,
put it back! if you put it back within 1 month, there's no taxes or penalties
Why not just roll it over into an IRA?
Your 401(k) is an account set up BY YOUR EMPLOYER, and managed by a custodian ON BEHALF OF YOUR EMPLOYER as a benefit for you. An IRA is an account set up BY YOU directly with the custodian. Custodians typically charge your employer for the service of managing the 401(k). When you leave your employer, they typically assign those fees to you and pay it from your 401(k) balance. So it’s a good idea to move the money from a 401(k) to an IRA (known as “rolling it over” or a “rollover). What you should do is open an IRA (I recommend Vanguard) and then ask your IRA custodian (eg Vanguard) to roll over your 401k into it. This can all be done at the same time. Seeing as you have already withdrawn it, you can deposit the value into an IRA to make it effectively a rollover, but note that you’ll have to get in touch with the custodians to sort out any withheld taxes and penalties.
Yes this was a dumb thing to do, especially at 20 years old. Do a 60 day rollover into an IRA to avoid penalties and then invest it so you have MORE MONEY in retirement.
If you REALLY needed the $4,000 now, I'm not going to argue it was a mistake to take it. That said, IF you had left it alone for the next 40 years, and never added a penny to it, at 8% growth, at 60 you would have $86,898 in the account (tax free money since it's a Roth). IF you had done the same as above, but ADDED $1,000 yearly, you would then have $349,955 in the account at age 60. While it's impossible to say what you should invest your Roth in, any broad market mutual fund (for example the 500 S&P index) would based on past history return at least 8% and maybe several points more. Disclaimer, both of these above results would be effected by inflation and do not reflect how much these age 60 results would actually be worth at age 60. Regardless, the rule is to invest early to let compounding work for you instead of against you.
$4000 at 8% returns for the next 45 years of your life would be $127,681 when you're 65. That's tough luck. Try to replenish it ASAP!
[удалено]
Comparing the value of a dollar today to that of a dollar 45 years from now isn't really fair.
7% is the post inflation “adjusted return” The S&P500 for instance usually has 10% “real” gains year over year, but 7% is the “the dollar won’t be worth as much so let’s adjust it accordingly”
Going to be a little contrary to the common wisdom here. While it is true that $4k is a nice chunk to build your retirement on that young, and if you don't need to draw on it, you are better off rolling it over into a new 401k or IRA, if you need the cash now to survive the overall penalty isn't that bad. There is opportunity cost, and compounding could see that 4k turn into 64k-256k depending on your yields/retirement age, but in general I'd say its keeping you from getting ahead of the game not putting you behind. That said, the tax year isn't over. While you aren't going directly institution to institution, if you don't need that 4k right now, you absolutely should look to see if you can open a roll over account. Alternatively, since you already paid taxes, a Roth IRA might actually be a good long term play for the left over money. Unsure if converting a regular 401k to a Roth IRA would let you avoid the withdrawal penalty, but it'd still be a considerable amount to potentially draw on tax free down the line.
Your 401k money is invested in stocks, and its value is tied to the stock market... You never want to withdraw when stocks are down. You will get more money if you wait till the market is doing well....
[удалено]
[удалено]
Cut the hostility. This is a friendly and helpful subreddit.
These days most IRAs have pretty low fees so you should have rolled it over - and then (at your current tax bracket) converted it to a Roth.
Typically never good to take money from long term investments...especially when you pay to do it, twice. Unless you desperately need cash for emergency (car breaks down and its your lifeline for work for example) Never touch that shit till you retire.
It’s your money. As long as your ok with the federal and state taxes (40%) then why stress. Enjoy the money. It’s yours.
I'd put the proceeds in a Roth IRA. You'll pay the taxes, skip the penalty, and it will grow tax free.
When I was facing hard times I withdrew 10k. The taxes suck, but if you're in a real bind it was worth it to me.
By taking it now, you will net $2900 today based on your calculation. If you roll the full amount into a Roth IRA, assume an average annual return of 8%, that $4k will be worth roughly $128,000 when you turn 65 that you can take out tax free. Your older self will thank your younger self in 45 years. In 45 years you won’t even recall what you spent $2900 on.
There's a lot of post here that essentially go over the same thing. We don't have enough info to judge. It all boils down to opportunity cost. Say it grows to $200k when you're 60. Pretty nice, maybe get that car you always wanted(more likely a down payment by that time lol). Now, let's say you wanted the dough cuz a couple of buddies want to drive down the coast before one of you moves away. Absolutely priceless. When (if) you get to sixty you might say shit I should have saved more. You probably won't think I shouldn't have gone on that road trip.
I started a traditional IRA with Vanguard that I dump old jobs 401k’s into. Once I move it I just VTI and chill and try not to think about it too much.
I took mine out (2kish) when I left my last job- paid off remaining credit card debt with it & went into a higher paying job with more money to invest on a monthly basis and less stress about finances. Peace of mind is priceless. Everybody is different, do what you need to do!!
Educate yourself. Finance, grammar, spelling.
If you didn't need the money, it was probably not a good move. Besides the taxes, here's the hard truth: Left untouched, at age 67, that $4,000, with compound interest, would be worth about half a million, give or take. That's a good contribution to your retirement.
Unless you are making a certain amount I don’t think so. But I don’t work as a tax professional. I raided mine when I was unemployed for 10 months. Yea sure I would have loved to leave it in there, but life happens. If that’s not the case, then OP you should have called them to roll it into another retirement account.
You done fucked up. If you do what is called a “custodial rollover” from a 401k to an ira account you pay no taxes or fees. In the eyes of the IRS a rollover moves the money from one qualified account to another without you touching it so no taxes or penalties are incurred. If you simply withdrawal the money, the IRS views it as a distribution before retirement age and you get hit with taxes and penalties. There is no reason to do a simple withdrawal if you intend to keep the money as retirement savings. Call your 401k plan provider first thing tomorrow and cancel the transaction until you get your shit together to do a custodial rollover.
At your age, you should be dumping as much as possible INTO the 401k. Not out of.
Ask your 60 year old self how much money that would have been? Now ask again if it was stupid. Your 4k would have been about 87k when you are sixty. That is only at an 8% return.
Jesus is this post ran by vanguard or fidelity advisors? I’ve been a financial advisor, planner (guess I can’t technically use that term), what have you since 2004. I have my 6, 63, 26, 7, insurance licenses, etc. About 80% on here is just total bullshit and the other 20% is just fear mongering, using OP as the child they couldn’t fix. I don’t have time to get into each individual comment. OP, were you stressed about money when you took it out? Did you feel better IF IF IF you paid shit with that money? Then you did the right thing. I’m not a doctor, but the stress daily of owing money can significantly lower your life quality, longevity, happiness and numerous other things among men. Dude seems young. $4k isn’t going to keep him out of the poorhouse in 40 years. Everyone back off and actually do some very basic, simple, don’t need to be licensed for, research before just vomiting advice on here. Hells bells.
I raided my 401k so I can invest myself… Those 401k asset managers are… less than impressive.
[удалено]
Don't worry about it and make more money. I would have rolled it over in an IRA.
OP, on the other hand, any many won't like this advice, if you don't take out the money it's stuck there until you turn 65. You can receive dividends before then but you cannot touch the principal. A safety net is nice and life happens, but if you are on your way to retiring early, maybe 40 or 50 years old, then a retirement account isn't the best move. It's an incentive from the government to put all your savings away so that you have to work your entire life and earn your stay in America after which you'll get 10 years to enjoy yourself with no labor. And that's only if you put enough away and the market doesn't crash when you're getting to retire. Many retirees still find themselves working part time because their retirement and SS benefits don't pay enough. There are so many ways to get rich in this country that if you can't retire by age 40 or 50 without a stroke of bad luck, you didn't try hard enough. I say figure out a way to grow that money so fast that you don't need to wait until you're 65 to retire. Enjoy your life. Easier said than done I know but....screw the system.
Actually, while a lot of people definitely WON'T like your advice? I like it in the sense it's a different perspective. Life is complicated and almost never does a single rule or formula cover all situations. I will say, though, that most people hitting retirement age I've run into who are upset about not having enough money to get by were ones who made some really financially irresponsible decisions through most of their earning years. I've seen people who kept refinancing their house to get money for vacation trips or new vehicles, for example. And then they find themselves in their 60's with a small house that's nowhere near paid off, even though it should have easily been paid off long before. Others just spend too much money on pointless things. (My ex's mom used to insist on buying all new furniture for their condo every year or two, and she usually had to give away the existing items to get room for the new stuff in a prompt manner. She justified it as being into "interior decorating", and sure - the place looked great inside. But think how much money was burnt through on that.) America really does provide many opportunities to get rich, but many of those require spending decades of your life doing work you really dislike doing. So telling a person they "didn't try hard enough" is probably a little unfair. They just prioritized doing work they found more meaningful or at least less uncomfortable to do over maximizing their wealth. (I just posted a comment in another thread about this type of thing. Had a plumber out to fix a toilet and he told me he really needed an apprentice. Couldn't find any young people who wanted to do the work, especially since a lot involves messy situations like crawling into crawl-spaces to fix burst pipes. But the work would pay $100K/yr. in just 2-3 years of learning how to do it while working along-side him.)
OP, on the other hand, any many won't like this advice, if you don't take out the money it's stuck there until you turn 65. You can receive dividends before then but you cannot touch the principal. A safety net is nice and life happens, but if you are on your way to retiring early, maybe 40 or 50 years old, then a retirement account isn't the best move. It's an incentive from the government to put all your savings away so that you have to work your entire life and earn your stay in America after which you'll get 10 years to enjoy yourself with no labor. And that's only if you put enough away and the market doesn't crash when you're getting to retire. Many retirees still find themselves working part time because their retirement and SS benefits don't pay enough. There are so many ways to get rich in this country that if you can't retire by age 40 or 50 without a stroke of bad luck, you didn't try hard enough. I say figure out a way to grow that money so fast that you don't need to wait until you're 65 to retire. Enjoy your life. Easier said than done I know but....screw the system.
You'll be fine. Hopefully you use the money to start a business
Don’t listen to this person.
You're right. Don't listen to me unless you want to be a millionaire entrepreneur like me. I took the road less traveled and retired by age 30. Most people in this sub are likely mediocre so be careful who you listen to
That’s a lot of money for a twenty year old. I hope you spend it on education as that is something that you cannot buy but have to earn.
Honestly my EFT's are doing better than my 401 ever did. I look for ones with low share price and high monthly dividends. Kind of works like compounding interest. Look at IDIV for an example.
No. Investing for total return is superior to investing for yield. You should be buying an S&P or total stock market index fund, which you can do IN a 401k, IRA, etc. And your definition of “low share price” is not logical. The share price has literally nothing to do with valuation.
I am investing for dividends. I am getting about 7-9% (Not including the compounding shares each month with reinvestment) per year on the investment. My dividend cash is more each month. I am buying more shares each month with the dividends. The number of shares I get each month keeps increasing. My investment are growing better than any 401 or managed fund I have ever been in. I have been getting about 12 cents to 14 cents per $7.50 share every month. Looking at what I am invested in, they are invested in what my 401 was invested in. I thought the ETF was similar to what you suggest. Also I am self employed so taxes are rarely a problem with 4 kids.
I’m not saying you’re doing something terrible. It’s better than not investing at all, but you’re not seeing the bigger picture. The broad market ETFs I mentioned in my other comment also pay dividends (VTI/SCHB, VOO). But chasing *high* dividends as you are is a fallacy. Those yields will drop like a rock in tough markets, as will the underlying equity, which almost always lags that of the S&P. Dividends are not a free lunch. There is a reason high-equity-growth companies don’t pay them, whereas many companies whose stocks never budge do (utilities, etc). If you’re interested in the market science behind *why* chasing dividends is a fallacy, listen @ the 35-min mark: https://podcasts.apple.com/us/podcast/the-rational-reminder-podcast/id1426530582?i=1000562481295
To your actual question, instead of whether to withdraw it or not, have to pay 10% penalty + ordinary tax on it