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mad99
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401k Advise

Tue Dec 04, 2012 12:40 pm

I worked in California about 15 years ago and the company i worked for had what was called a 401k retirement plan.

My sister lives in California and she has rights to the account, meaning she can treat it as her own. Every year she renews the 'cd' and i continue to rake in the 0,00001% interest rate on offer.

If i take the money out i'll be taxed on it (not sure at what rate?) and then given a penalty (not sure how much or at what percent?) so the money will disappear quickly and then i'll transfer it to euro for the final blow.

So what i'd like to know..

What can i do with it to get a better return?

Its looking like my sister is going to get a divorce and she is not the main earner of the two. So if they split everything 50-50 she will not be able to pay for the house. Is it possible to gift the money due to hardship?

thanks for any ideas
 
rfields5421
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RE: 401k Advise

Tue Dec 04, 2012 2:55 pm

You will be taxed at your current income tax rate - however cashing out the 401K will likely move you into a higher tax bracket.

If you are under age 59 and 6 months - you will pay a 10% penalty on the amount you take out - i.e. If you take out $100,000 - you pay $10,000 in penalty - and you still pay income tax on the full $100,000.

You can move the money to a higher return individual IRA - if the rules of the company allow the 401K to be moved.

Check with the investment team at your bank. Call Fidelity or Vanguard. They can all tell you exactly how to move the money and get a higher return.

As far as gift - probably unlikely. You need to talk to a tax accountant about that.
 
AviRaider
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RE: 401k Advise

Tue Dec 04, 2012 3:02 pm

I'm not an expert by any stretch but I do have a 401K myself. 401K is pre-taxed and when you cash out 20% goes to taxes. If you cash out early before a specified age limit or verified retirement, you will have to pay I believe a 10% penalty for early withdrawl. So you'll have to figure if it's worth cashing out now with 30% automatically gone, or holding on to it and letting it grow with time and it could be a substantial pot in the future.

Something else to consider, you can take out a 401K loan with you retirement fund agency, if you really need the cash.
 
LAXintl
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RE: 401k Advise

Tue Dec 04, 2012 3:14 pm

Why are you letting the money sit in a useless CD?

Invest it - transfer it over to firms like Vanguard, Fidelity. Get in bonds, stocks etc.
If you have no interest in managing the funds yourself both companies offer targeted retirement funds based on your age and they invest the money appropriately. For example the 2030 target fund at Vanguard grew annually 12.55% last 12-months or 8.99% over the last 3-years.

As far as the transfer - is it still a 401k, or has been converted to an IRA already?
From the desert to the sea, to all of Southern California
 
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mad99
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RE: 401k Advise

Tue Dec 04, 2012 3:31 pm

Thanks to everyone above for replying

Quoting LAXintl (Reply 3):
Why are you letting the money sit in a useless CD?

I know vary little about investing and my sister even less..

Also, i know a few people who now are saying my 401 is now worth 1/2 of what it was etc so although a cd is useless i know what it is.

I'd like to help my sister if she does get a divorce, as in gift her the cash or become a part owner in a house etc.
 
rfields5421
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RE: 401k Advise

Tue Dec 04, 2012 3:40 pm

When I left my company (invited to retire), I had the option of getting out of the 401K and rolling the money over into an IRA, or I would have to leave the money in the 401K until I was 62.

Each company may have different rules, but today most have something similar or even easier for you to pull your money out.

What you want is a rollover to an IRA.

It sounds like you have already done that if the money is in a CD which has to be renewed each year.

You can move that money easily to another investment account and not have to pay taxes on it.

As far as helping your sister - you really, really need to find a tax accountant and go over the details.

Quoting AviRaider (Reply 2):
401K is pre-taxed and when you cash out 20% goes to taxes. If you cash out early before a specified age limit or verified retirement, you will have to pay I believe a 10% penalty for early withdrawl.

20% is a standard withholding rate. You may owe more, or less taxes on the money depending upon your total income for that tax year.

For example, most lottery winners see 20% withheld, but end up owing 35% taxes on the lottery winnings - so they have to pay the rest the next April.
 
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mad99
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RE: 401k Advise

Tue Dec 04, 2012 4:00 pm

Quoting rfields5421 (Reply 5):
It sounds like you have already done that if the money is in a CD

ok, sounds like a 401 is different to ira, i'll find out what it is.

Quoting rfields5421 (Reply 5):
As far as helping your sister - you really, really need to find a tax accountant and go over the details.

i will, thanks

If i can't gift it without paying massive taxes then i'd like to try and get better returns but without creating extra work for my sister.
 
LAXintl
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Joined: Wed May 24, 2000 12:12 pm

RE: 401k Advise

Tue Dec 04, 2012 4:23 pm

Yes first find out if its an IRA (individual retirement account) already.

As far as managing it, your sister really does not need to be involved. If you move it to some of the large investment firms like Fidelity or Vanguard you can manage it 100% remotely via internet or on the phone.
From the desert to the sea, to all of Southern California
 
L-188
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RE: 401k Advise

Tue Dec 04, 2012 10:50 pm

Keep in mind that a goid chink of this advice may not apply depending how washington works things out
OBAMA-WORST PRESIDENT EVER....Even SKOORB would be better.
 
fr8mech
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RE: 401k Advise

Wed Dec 05, 2012 3:05 am

How did your sister get the rights?

Do you still retain the ability to control the account?

As I understand the law, it ceased being a 401K as soon as you left the company. It probably reverted automatically to the most conservative (read that as low return) type of account that the investment firm offered. And yes, there will be a 10% (it actually may be 20%, I don't recall) penalty off the top, then it will be taxed at your current rate. Depending on your current income, your rate may go up.

Now, on to the divorce. Yes, if this asset is in her name, it may well be subject to division in the divorce proceedings. You need to get control of this asset. Now, if your sister is just a custodian, she will probably need to show that this was your asset originally and was given over to her as a custodian and not an owner.

I strongly suggest you contact a lawyer, especially if your're talking a large amount of money.

Quoting mad99 (Reply 4):
I know vary little about investing and my sister even less..



After you get ownership squared away, you need to roll that over to an IRA that is actually earning something and that is managed by people who do this for a living.
When seconds count...the police are minutes away.
 
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mad99
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RE: 401k Advise

Thu Dec 06, 2012 6:15 am

Quoting LAXintl (Reply 7):
Yes first find out if its an IRA

Yes it is.

Quoting fr8mech (Reply 9):
Do you still retain the ability to control the account?

yes but i don't have any internet contact so i'll see about setting that up.

Quoting fr8mech (Reply 9):
divorce

Thanks, good idea.

Quoting fr8mech (Reply 9):
people who do this for a living

Fidelity or Vanguard

any others?

thanks all
 
fr8mech
Posts: 6622
Joined: Mon Sep 26, 2005 9:00 am

RE: 401k Advise

Thu Dec 06, 2012 10:03 am

Quoting mad99 (Reply 10):
Fidelity or Vanguard

My 401K is through Fidelity, my wife's IRA's (she has changed employers) are through Vanguard. I think Fidelity's website is much easier to navigate and work with.

As for others, there are dozens. Any of the larger brokerage firms should be able to handle a 401K/IRA transfer.
When seconds count...the police are minutes away.

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