Question regarding 401k

[Talitha]

How does someone find out how much is in their 401k, and also find out what the penalty would be if they cashed it out?

He's 41, lost his good-paying job over a year ago (pre-pandemic), could really use the money, and just doesn't know where to begin.

Thanks!

[MichMan]

1. They should be getting quarterly statements on the account balance

[customerserviceguy]

2. Have him

contact the holder of his 401K account. Expect to have to provide a LOT of verifying information over the phone, they want to take maximum steps to avoid fraud.

With a 401K (or any tax deferred retirement account, one has to up take the amount withdrawn as taxable income in the year it was received. Also, there's a 10% premature withdrawal penalty, unless you have something from a list of very pressing needs (like medical bills).

Also consider that if he drains the account now, he may not have anything to fall back on when he does retire, and at age 41, the system is likely to cut way back on payments before he hits 62. I had nothing at age 52, but then I got a union job that paid good wages, and I was able to save up to 22% of my pay for over seven years. I'd tap those funds only as a last resort. I'd even consider filing bankruptcy after finding another job.

[calguy]

3. Any early withdraws results in a penalty

of 10%. Plus paying the income taxes on the funds withdrawn. The withdrawal amount is added to the income of whatever your wages were. In some cases the addition of the amount withdrawn can put you in a higher tax bracket when you figure your 2020 taxes.
At any rate, it will cost you at least 10% penalty. Also note that if the amount withdrawn is put back into the account within 60 days then there is no penalty, although you can only do that once a year.

[Skittles]

4. CARES act eliminated that during pandemic

I would definitely make sure that is still the case though

https://www.consumerfinance.gov/about-us/blog/cares-act-early-retirement-withdrawal/

[progree]

6. One has to meet certain Covid - related criteria though

https://www.consumerfinance.gov/about-us/blog/cares-act-early-retirement-withdrawal/

How do you qualify for the exemption?

You, your spouse, or dependent was diagnosed with COVID-19 by a CDC-approved test , OR

You experienced adverse financial consequences as a result of certain COVID-19-related conditions, such as a delayed start date for a job, rescinded job offer, quarantine, lay off, furlough, reduction in pay or hours or self-employment income, the closing or reduction of your business, an inability to work due to lack of childcare, or other factors ( https://www.irs.gov/pub/irs-drop/n-20-50.pdf ) identified by the Department of Treasury.

A coronavirus-related distribution is one that meets this criteria and is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020.

He lost his good-paying job over a year ago (pre-pandemic)

I don't think this qualifies, even though it is undoubtedly harder to find work now because of Covid.

[JenniferJuniper]

5. I'm pretty sure the 10% penalty is waived,

at least temporaily due to Covid.

Also, you can access 401k funds without the penalty the year you turn 55 if the money is left with the fund of the company you left that year or later. It's referred to as the Rule of 55 sometimes. Absent one of these scenarios, the penality is in play until 59 1/2.

[Talitha]

7. Ok thanks, I'll give him a call and let him know what all of your advice is.

Thanks again!

[A HERETIC I AM]

8. Good suggestions above, here's my two seas.....

(Two Seas....2 C's...2 cents worth). Sorry to be such an ass!

If there is ANY WAY AT ALL for him to avoid cashing in his 401(k), he should avoid it at all costs. Trust me, as a guy who can speak from experience, DO NOT CASH IN A 401(k) UNLESS YOU ABSOLUTELY HAVE TO!!!

Even if it means borrowing a couple grand from mom and dad or another relative just to tide you over, don't fucking do it.

When you say "Could really use the money" I want to know....;

1) Really? I mean..is your car about to be repossessed?
2) Are you about to become homeless?
3) Do you have nowhere else to go?
4) Is there is any way at all to keep your head above water?

I've been in all of the above situations, and surrendered 401(k)'s as a result.

As it turned out, I could have worked my way through ALL of them and kept the accounts. Had I done so, I would actually have been able to retire in about ten years.

Because I didn't, I have to work till I drop dead.


DO. NOT. SURRENDER. A. 401(K). UNLESS. IT. MEANS. YOU. WILL. BE. DESTITUTE. IF. YOU. DON'T.

Sorry to be so dramatic. It's late!

[lastlib]

9. I agree!

Other than a payday/title loan, this is the WORST financial option you can choose. I might suggest checking to see if you can BORROW from it, and what the consequences of that would be. Those loans HAVE to be repaid in full on a pretty tight schedule, but it might at least be an option.

[A HERETIC I AM]

10. Agreed.

Borrow from it, squeeze what you can from lenders, borrow from family,.,.,whatever!

Just don't toss it!


I figure I'd be up close to the high 6 figures by now if I hadn't done what I had done, and I'm just a modest trucker.

[Talitha]

11. Thanks for the additional advice.

He started the 401k about 5 years before losing the job, and has not been getting quarterly statements. I wish I knew something (anything) about investments etc so I could steer him in the right direction but I'm clueless.

Right now I'm thinking it would be great if he could have a sit-down consultation with someone - - would an Accountant be able to guide him?

[progree]

12. Employer doesn't provide quarterly 401k statements? Sounds extremely very fishy

Last edited Fri Aug 21, 2020, 02:44 AM - Edit history (1)

http://www.401khelpcenter.com/faq/faq_19.html#.Xz7lqchKhuU

How frequent is my employer suppose to provide participants with account statements on directed retirement plans like a 401k?

Answer: Your employer must provided statements quarterly for participant-directed individual account plans and annually for all other individual account plans. The Department of Labor says that participant statements should be provided no later than 45 days after the end of the quarter.

The statement must include, among other information, the following: (snip)

On edit - OK, since he lost his job, he's not an employee, so I'm not 100% sure the above applies. But it is unbelievable to me that not furnishing regular statements to any 401k participant -- employed or not -- is legal.

Edited to add - an accountant, if also a tax prepararation professional (and not the type that works at those high-speed in-and-out tax preparation mills where they promise you the maximum refund and expect you to sign your return without looking at it) would be able to tell him the tax consequences of the actions he might take. But they aren't investment advice professionals unless they have additional credentials.

More edit - If the employer is not going to furnish statements, and/or is otherwise being an ahole, the next move would be to roll it over into an IRA at some reputable financial firm. The three I have extensive experience with are Vanguard, Fidelity, and Schwab. I rolled over a 401 K and an ESOP from my employer to Vanguard back around 1998 I'd guess it was, without a problem.

There are rules to follow in doing rollovers -- the best is a direct institution-to-institution from the employer to whatever firm he chooses to be custodian of the new IRA. IMHO, that's the only way it should be done.

All 3 of the above did a fine job dealing with inherited accounts (this was back in 2005). Fidelity had an excellent booklet on how to deal with an inherited IRA, and handled getting an inherited IRA account properly re-titled and all that just fine.

[Talitha]

13. Thanks for all of the info everyone, it's a lot for him to chew on.

I'll print all of this out and let him decide what he wants to do.

Thanks again!