401K financial planning

The job offer is coming from an organization a few city blocks up the street. You’ve logged a number of years with your existing employer, enough that you have a sizeable 401K built up…time for some  financial planning .

Of course, all of your contributions to your 401K remain tax-free until you withdraw it.

After all, the money you put into it via your payroll deductions was not taxed during all those years you with your company—and you probably enjoyed some tax advantages during those years of contribution as well.

401K plan

Can I Just Withdraw all of it to buy a villa ?

Any withdrawal is treated as ordinary income

However, beware of the the ‘ol double-whammy if you don’t meet certain age requirements, or certain withdrawal qualifications. Moreover, you’re looking at the second part of the whammy: 10% penalty on the full amount you withdraw.

When is it ok to withdraw?

There are a few conditions  that will dictate how any sum taken from the 401K will be treated;you won’t be taxed or penalized if:

  • you die, your designated beneficiary receives it
  • you become disabled
  • you are at least 55 years old and are terminated by your employer
  • you withdraw an amount less than allowable for a medical expense deduction
  • you begin substantially equal periodic payments

401K

Yes you can take it with you

It’s portable, and transferrable if you leave your employer, but with some strict guidelines.

First off, and any account you set up with a ‘guardian’ entity, like investment firms, is called a Rollover IRA: you’ve earmarked the 401K to rollover into a firm like a Fidelity or Vanguard, to name a few.

It’s a must: check with your company’s human resource person as you make plans to exit your employer’s firm. They will help you navigate these tricky waters.