Transcript: Cash Out Your 401(k)
Cashing out my 401(k) really wasn’t part of the recipe. Neither was losing my job. And I’m a long way from being able to retire, and I needed to do more than learn to cook to earn my keep around here. So I tapped into my 401(k).
Taking the lump-sum distribution was a hard decision. I got the money right away and was able to pay a few bills. I’ve even reinvested some of the money and I have the time to work those investments to the best of my advantage. One thing I didn’t realize is that I didn’t have to take all of my money out and pay taxes. I could have taken what I needed, left the rest and gave it a chance to grow tax deferred.
By accessing your 401(k):
- You have immediate access to your money
- Partial distributions are allowed
- And some distributions might be penalty-free
You really need to find out how much you’re going to lose due to taxes and potential penalties before you do anything because it may be more than you think. Talk with someone like Wells Fargo because cashing out isn’t for everyone. It was the best choice for our situation.
You should keep in mind if you're cashing out, there is a:
- Potential 10% early distribution penalty and a 20% income tax withholding
- Also, the distribution is taxed as income so it may have a potential impact on your tax bracket
- And remember, your savings won't have the chance to grow tax-deferred
Hopefully, I can find a job soon and try to get my retirement savings back on track. But take it from me – if you have to cash out, make sure it’s the right choice for you. Wells Fargo talked with me about my options, and I’m sure they’d help you too.