401k Rollover Or Cash Withdraw?


When it comes time to switch jobs, your retirement savings need to go with you. However, they can follow one of several different paths. You have the choice of cashing out your 401k, or simply transferring it elsewhere, to say an IRA fund. There are some significant drawbacks to going the former route. One of the more notable is that the withdraw amount will be taxed. Depending on the tax rate, that could mean a good chunk of your savings down the toilet. By default, your employer will have to take nearly a quarter of the savings to help pay off federal income taxes. You will also have to pay income tax on the savings. Additionally, depending on the time of withdraw, you might face some penalties.

Fortunately, a 401k rollover to IRA isn’t taxed. This is probably the smartest route you can take (especially if you don’t intend on moving to another job). In those circumstances, you can have your 40lk savings transferred to the respective company’s retirement plan.

In tough situations, however, some people are forced to take from their savings as a last resort. This is known as a 401k hardship withdraw, and is governed by some strict guidelines established by the IRS to ensure that you have completely exhausted every last option. One acceptable reason (as defined by the IRS) for tapping into your savings is for unpaid medical expenses. Even education-related expenses are considered appropriate grounds for cashing out. Even though you may find yourself in trying times, you will still be subject to taxes and any applicable penalties.

It makes absolute sense to rollover you 401k to other retirement accounts until it comes time for you to actually retire. The costs involved in cashing out early make it anything but worthwhile. Try to plan ahead for financially straining circumstances so you don’t find yourself needlessly draining your nest egg.

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