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Early 401K Withdrawal - Talk Me Down Off the Ledge!

SilenceDogoodSilenceDogood subscriber Posts: 9
edited November 2008 in Growth Funding
Under normal circumstances I would never consider doing this. 
However, there is news chatter that congress may nationalize / government-ize private retirement accounts (go to a news site and search 401k).
Frankly, I would rather take the early withdrawal penalty and be in control of my own money than to let the government get their hands on it.  I am certain it would disappear and be replaced with worthless IOUs (see social security - of which at best I will see pennies on the dollar).
I post this here because I would probably use the money from my IRA (rollover account from a previous employers 401k plan) to fund my growing business.
I am a pure bootstrapper - if that makes a difference.
Talk me down off the ledge? 


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    robertjrobertj subscriber Posts: 0 Member
    You bring up an interesting point - it`s the first time I`ve heard it, so I`ll have to do some research.
    However, you should know that there are ways for your business to benefit from your retirement funds without paying the penalty.
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    SilenceDogoodSilenceDogood subscriber Posts: 9
    I`m going to be talking to a financial advisor and my accountant soon.
    The objective is not simply to benefit my business but to avoid my hard earned savings from going down a government toilet (flushing sound here).
    I know one can do a SEPP (substantially equal payment plan) and avoid penalties.  But, as I said, the idea is not just access to the money.  If it were not concern for nationalization this would never enter my mind.
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    robertjrobertj subscriber Posts: 0 Member
    I`m not clear as to your objectives:

    Are you wanting to access these funds for your business without the withdrawal penalty or are you wanting to move them out of any retirement account?
    If your advisor and accountant can`t help you - I can give you a contact that might be able to.
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    SilenceDogoodSilenceDogood subscriber Posts: 9
    My objective is simple: To not let the government control my 401k.  There is chatter that they have tossed around this very idea.
    So - I am seriously considering pulling the entire amount of funds out to keep it safe from nationalization.
    What I actually do with the money if I pull it out is another matter.
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    SlowCookerMateSlowCookerMate subscriber Posts: 1
    DoGood - It is just that -- chatter.  If you are concerned about what the govt it going to do, voice the concern to your Senator or Representative.  Get involved with your Senator or Representative.  They love to hear from their constituents.
    My Senator is Joe Barton from TX.  I never hesitate to contact his office if I have a question.  His staff is wonderful about listening to what I have to say.
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    SilenceDogoodSilenceDogood subscriber Posts: 9

    DoGood - It is just that -- chatter.  If you are concerned about what the govt it going to do, voice the concern to your Senator or Representative.  Get involved with your Senator or Representative.  They love to hear from their constituents.My Senator is Joe Barton from TX.  I never hesitate to contact his office if I have a question.  His staff is wonderful about listening to what I have to say.

    I contacted my reps before the bailout.  I got a polite form letter in response.
    I frankly do not trust that it is just chatter. 
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    RegRepRegRep subscriber Posts: 0
    Who, with any money in a 401K, will not be talking about how to keep it out of full governmental control -- other than currently implemented parameters defined by the tax code.  My long-time clients are concerned and I am getting it from by better half.  Why shouldn`t we just pull it all out and stick it under the mattress?  Surrounded by this growing consternation several issues come to mind:
    We are in a down market, so not the best idea to cut and run.
    Disbursment prior to age 59.5, you pay10% plus current income tax bracket come April 15th.
    Where, ultimately, to put your money where you have control and the government doesn`t.
    What is to keep the government from going after your IRA as well?
    Would the government eliminate the tax advantage of non-qualified tax deferred annuities?
    What about national municipal bond funds?  No more tax break?
    The mattress idea is out, of course, but seriously where could you put your funds where the tax man or government could not eventually get their hands on them.  I do not know.  And I believe there is no good solution or solace to be offered at this point.  I would like to see responses from local representatives posted, form letter or otherwise.  I intend to contact my own and post their replies... 
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    TippieTippie subscriber Posts: 0
    The safest way I have found is CD`s.  I have taken money out a little at a time every year and put it into CD`s. It saved me some money for sure this time. This crash is horrible. But they come around every seven years or so.
    IRA`s and 401K`s are all no good for the long haul. You cannot withraw all your money or sell all when market tanks because you pay a heavy penalty in taxes. Uncle sam benefits and not you. 
    I again will wait for the economy to recover and then will again withdraw what I can safely withdraw every year without paying much in taxes. I am 63 and do not have to pay a penalty.
    I took early retirement and can make up to x amount of dollars per year. That x amount is what I take out of my 401K and put into CD`s. I wish to have something left for my older years.  Leaving it all in my 401K would be plain suicidal because there will be another CRASH in 7-10 years. Never fails!  Just my humble opinion of course. 
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    robertjrobertj subscriber Posts: 0 Member
    Although I don`t know the specifics of your situation, I`d like to offer the following comments:
    1. If your comment on "can make up to x amount per year" is referring to your social security benefits - then my understanding is that "passive" income does not effect your benefits. Only income you earn.
    2. Virtually every IRA custodian allows for you to place your money in CD`s or money market accounts. If yours doesn`t - it`s pretty easy to change to a different custodian.
    3. There are many different scenarios in the way 401k`s get set up by the company. Since you are retired, you should be able to "roll" yours over to an IRA with a custodian that allows "investing " in CD`s (see above). 
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    OfficeSuiteOnABudgetOfficeSuiteOnABudget subscriber Posts: 0
    I don`t see why you do not roll over your 401k into an IRA and invest it in the CDs you like. Most banks would be happy to do that with you.
    The general rule of thumb is that an "employer sponsored" 401k is always restrictive in its investments. So when ever you leave your employer, the first act to do is to roll it over into an IRA, where you can invest your money in almost anything you want.
    Good luck
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    TippieTippie subscriber Posts: 0
    Hi, Thank you so much for information. I will check into that. Currently I am in mutual funds with Fidelity and the only way out of the fund is to sell the shares and then place the money in CD`s.
    PS. Yes I was referring to SS income. But you also have to claim the interest income from the CD. It counts as income also. Uncle sam gets you coming and going.
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    MrLiquidityMrLiquidity subscriber Posts: 2
    Having control of your money as an entrepreneur is critical!  While I am not sure what would happen if the government tried to get their greedy hands on our retirement money, you may want to use some alternatives from now on. 
    You made a couple of key points in your post:  You want to be in control so that you can invest in your business.  Many talented and successful entrepreneurs get caught up in the "tax advantages" of using retirement accounts to growth wealth for the future.  I take a different approach.
    If you believe in yourself as an entrepreneur and will do whatever it takes to make your business succeed, why not leave the majority of your money in places where you can use it in your business - without being taxed and penalized to death?  In my humble opinion, entrepreneurs who enable themselves to thrive by focusing on financial liquidity stand a much better chance at success.  After all, cash is king, and retirement account are the antithesis of liquidity.  Besides, there are plenty of tax benefits for business owners too. 
    While I am not superstar writer, I did attempt to write an article about this.  I posted it on ezinearticles.  Feel free to check it out if you would like - it`s kind of a fresh approach to financial planning that is designed specifically for entrepreneurs. http://ezinearticles.com/?Entrepreneurs ... id=1615756
    Good luck with your business - keep bootstrapping away, it will pay off!
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    jrlittle86jrlittle86 subscriber Posts: 0
    Which administration is considering this? The incoming One? The administration who said 95% of us are going to get a tax decrease (or was it only those making under $250,000 - it kept changing so I can`t remember which it is)
    So, if this is chatter ends up being true, then all 401K holders are in the top 5% or making more than $250K...
    There are also the tax cuts that expire in 2010 for all of us who made about $42,000 or more. Has anybody heard if the New Administration has listed whether they will extend them or make them permanent?
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    VideographyVideography subscriber Posts: 401 Silver Level Member
    I love the juxtaposition of the two highlighted articles on the SUN newsletter:  "Talk me down off the ledge" and "Do it now".
    #1 - You`ve been listening to too much Limbaugh or watching too much Faux News. 
    Bottom line, as long as you are employed and the employer has a 401K plan (qualified retirement plan), you are pretty much stuck with the 401K.  But, as another poster said, the first thing you should do after leaving the company is to roll over the 401K into an IRA.
    If you are self-employed, then what the heck are you doing with a 401K?
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    dduttonddutton subscriber Posts: 1
    Oh, my National Treasure Friend - you are so right about the 401K, its one of the "evil, capitalistic" items that are up for grabs as we embrace "Change" and "Hope". So government control is a good thing, after all you are not capable of making good decisions with your money so the government is going to bail out your 401K, taxing it AND maybe ensuring that all people make exactly the same 3% growth on their money.  That is the plan being "floated" to Congress as a solution to increase tax revenue and capture your 401K dollars.
    So, I would actually wait until the legislation is mulling around Congress, early 2009 keep eyes and ears open - contact ALL conservative members of Congress, the Chambers of Commerce and all other business oriented organizations - then, utilize any valid method to convert your 401K into dollars today - tax or no tax.
    No matter if you put them in your business - also I hear that property can also be utilized in some forms of 401K -
    Realize there are two issues here - 1. who controls my 401K and 2. Bootstrapping until all the boots fall off!
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