|
Stocks, Bonds,
and 401(K):
If you own
stocks and/or
bonds, most
experts suggest
moving high-risk
stocks into
lower risk
stocks, bonds,
or CD’s, or
cashing them out
and putting them
in a savings
account for this
period. The last
thing you need
to happen at
this time is for
your savings to
evaporate in the
stock market.
You can always
switch the funds
back once you
are working
again.
Upon losing your
job, you will
have the option
of rolling over
your 401(k) or
cashing it out.
Most financial
advisors will
tell you to roll
it over into an
IRA or other
investment
vehicle you can
control. An
exception to
this is if you
are using it to
purchase an
asset that will
provide you with
positive cash
flow now, such
as creating a
demo tape of
your music and
marketing it,
starting a
business,
purchasing
rental
properties, or
acquiring a
patent and
bringing the
product to
market. These
are all
investments in
yourself and
your future that
may allow you to
break free from
employment
forever and
generate an
income you can
live on.
If you choose to
cash out all or
a portion of
your 401(k)
you will have
additional taxes
and fees
to pay when you
file your taxes.
The
administrator of
the 401(k) will
withhold 20%
before giving
you the cash. At
tax time you
will likely be
responsible for
the fees and
another 10% if
that money was
simply for daily
expenses, rather
than invested.
If you haven’t
been with the
company for a
long time, any
funds you
received as
matching will
most likely be
forfeited. If
you’ve worked
less than two
years for the
company, expect
to only receive
what you put in.
CBS News
reported in
March 2009 that
the average
American has
less than
$25,000 in their
401(k), which
isn’t enough to
retire on. If
you have to make
a choice between
being homeless
and hungry or
cashing out your
401(k), opt to
use it to
survive. You can
replace the
balance by
remaining frugal
after getting a
new job. Treat
it as a loan.
The creditor is
you. By making
yourself the
creditor you
agree to pay
that money back
to yourself as
soon as
possible. By
setting aside
$500 a month for
four years, you
can pay yourself
back up to
$24,000 once you
are re-employed.
One last issue
you should be
aware of if you
plan to cash out
your 401(k) or
liquidate any
large assets:
Be sure to check
with your tax
advisor and plan
for possible
capital gains
fees
levied as the
result of
profits from the
sale. Financial
advisors we
interviewed
stated that this
is the primary
mistake
unemployed
people make when
they choose to
cash out all or
a portion of
their 401(k).
Typically they
are shocked at
their next tax
filing to find
out they owe a
substantial
amount of money
to the
government. Many
times they’re
still unemployed
or just getting
back on their
feet. Now they
have the added
stress of owing
the federal
government
thousands of
dollars they
don’t have.
Lesson? Weigh
the cost against
the benefit.
Sometimes you
are better off
not selling or
cashing out. |
