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leighdvm
My golden boys!
Member since 3/06 4419 total posts
Name:
Michele
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Transfer to IRA or cash out? WWYD?
My former employer had a profit-sharing plan that only he contributed to. I received a letter from him recently asking whether I wanted a lump sum or to cash it out. I totally forgot he even did this, so it was a nice surprise -- it's not a huge amount, about $7600.00.
Would you transfer to your 401K or cash it out? I'm trying to figure out how much taxes would be taken out if I cashed it, but I can't understand the W4-P form for the life of me. I was thinking of cashing it out, and putting some in the bank to replenish our emergency money (which has been depleted due to a large purchase we had to make). If I do cash it out, I want to make absolutely sure that I elect to have as much taxes taken out so that I don't owe when I do income taxes next year -- but again, can't figure out the darn form!  Please assist this clueless old lady!!!
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Posted 8/10/10 8:18 AM  |
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Long Island Weddings
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Transfer to IRA or cash out? WWYD?
First question in my mind is, do you need the money now? If not really, then roll it over. It doesn't seem like a lot of money but over time it can be tens of thousands depending on your retirement timeline.
So start with that.
You will be parting with about half of it.
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| Posted 8/10/10 8:33 AM |
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FranM
And so it goes....
Member since 9/05 2217 total posts
Name:
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Re: Transfer to IRA or cash out? WWYD?
Personally I would roll it into an IRA. If you cash out you will be hit with a 10% tax penalty on top of your regular tax liability. So if you are in the 28% tax bracket you will loose 38% of your money.
If you are concerned about an emergency fund I world move it to an IRA rather than roll it into a 401(k) this way you can access it in an emergency and deal with the tax issue at that time. Some will have different opinion and say emergency fund first, retirement second but I just cant see loosing all that money to taxes if you don't really need to. You can rebuild your emergency fund overtime just stick to a plan.
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| Posted 8/10/10 8:35 AM |
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leighdvm
My golden boys!
Member since 3/06 4419 total posts
Name:
Michele
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Re: Transfer to IRA or cash out? WWYD?
Posted by Blu-ize
First question in my mind is, do you need the money now? If not really, then roll it over. It doesn't seem like a lot of money but over time it can be tens of thousands depending on your retirement timeline.
So start with that.
You will be parting with about half of it.
I guess I do need it now, since we recently depleted our emergency fund. I will seriously lose half to taxes? The form said 20% would automatically be taken out -- then it's asking for my allowances. It's me, DH and 2 children, but if I put zero, the most taxes would be taken out and I wouldn't get hit later, right?
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| Posted 8/10/10 8:36 AM |
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leighdvm
My golden boys!
Member since 3/06 4419 total posts
Name:
Michele
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Re: Transfer to IRA or cash out? WWYD?
one more question -- if I open a Roth IRA and transfer it into that, I'll still get hit with taxes, correct?
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| Posted 8/10/10 8:38 AM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Transfer to IRA or cash out? WWYD?
Posted by leighdvm
Posted by Blu-ize
First question in my mind is, do you need the money now? If not really, then roll it over. It doesn't seem like a lot of money but over time it can be tens of thousands depending on your retirement timeline.
So start with that.
You will be parting with about half of it.
I guess I do need it now, since we recently depleted our emergency fund. I will seriously lose half to taxes? The form said 20% would automatically be taken out -- then it's asking for my allowances. It's me, DH and 2 children, but if I put zero, the most taxes would be taken out and I wouldn't get hit later, right?
It would depend on your allowances and tax bracket. You will also get hit with a 10% penalty.
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| Posted 8/10/10 9:09 AM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Transfer to IRA or cash out? WWYD?
Posted by leighdvm
one more question -- if I open a Roth IRA and transfer it into that, I'll still get hit with taxes, correct?
This I'm not sure of. I'm sure someone else will come along with more knowledge to clarify.
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| Posted 8/10/10 9:10 AM |
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CookiePuss
Cake from Outer Space!
Member since 5/05 14007 total posts
Name:
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Re: Transfer to IRA or cash out? WWYD?
If you get a check to you, in your name, it's a mandatory 20% withholding. Then you will have to pay a penalty on top of that when you file your taxes and any additional income tax.
Roll it directly to your 401k or an IRA would be the most prudent financial decision.
Message edited 8/10/2010 9:40:11 AM.
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| Posted 8/10/10 9:38 AM |
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CookiePuss
Cake from Outer Space!
Member since 5/05 14007 total posts
Name:
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Re: Transfer to IRA or cash out? WWYD?
Posted by Blu-ize
Posted by leighdvm
one more question -- if I open a Roth IRA and transfer it into that, I'll still get hit with taxes, correct?
This I'm not sure of. I'm sure someone else will come along with more knowledge to clarify.
You will have to pay ordinary income taxes but will not have to pay a penalty.
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| Posted 8/10/10 9:39 AM |
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leighdvm
My golden boys!
Member since 3/06 4419 total posts
Name:
Michele
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Re: Transfer to IRA or cash out? WWYD?
Posted by shamrock124
If you get a check to you, in your name, it's a mandatory 20% withholding. Then you will have to pay a penalty on top of that when you file your taxes and any additional income tax.
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Thank you for your info.....Is there a way to pay the penalty and additional income tax beforehand? Like when I fill out the W4-P form, which I have to give to my former employer in 2 weeks?
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| Posted 8/10/10 9:45 AM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Transfer to IRA or cash out? WWYD?
Posted by leighdvm
Posted by shamrock124
If you get a check to you, in your name, it's a mandatory 20% withholding. Then you will have to pay a penalty on top of that when you file your taxes and any additional income tax.
.
Thank you for your info.....Is there a way to pay the penalty and additional income tax beforehand? Like when I fill out the W4-P form, which I have to give to my former employer in 2 weeks?
Depending on your allowances and deductions doing that may hurt you more.
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| Posted 8/10/10 9:49 AM |
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CookiePuss
Cake from Outer Space!
Member since 5/05 14007 total posts
Name:
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Re: Transfer to IRA or cash out? WWYD?
Posted by leighdvm
Posted by shamrock124
If you get a check to you, in your name, it's a mandatory 20% withholding. Then you will have to pay a penalty on top of that when you file your taxes and any additional income tax.
.
Thank you for your info.....Is there a way to pay the penalty and additional income tax beforehand? Like when I fill out the W4-P form, which I have to give to my former employer in 2 weeks?
The 20% is automatic if the check is taken in your name and it considered a prepayment of taxes. You should be able to request additional withholding though.
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| Posted 8/10/10 9:54 AM |
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CookiePuss
Cake from Outer Space!
Member since 5/05 14007 total posts
Name:
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Re: Transfer to IRA or cash out? WWYD?
Honestly, if you are just looking for this to replenish your emergency fund, I would consider using other means that offer a lower interest rate then 30% as you rebuild it. Most credit cards offer lower rates then that if you find yourself in a bind and then you can always cash out an IRA if desperate.
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| Posted 8/10/10 9:57 AM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Transfer to IRA or cash out? WWYD?
Posted by shamrock124
Honestly, if you are just looking for this to replenish your emergency fund, I would consider using other means that offer a lower interest rate then 30% as you rebuild it. Most credit cards offer lower rates then that if you find yourself in a bind and then you can always cash out an IRA if desperate.
agreed. We did this. Paid it off in a year. 0%.
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| Posted 8/10/10 9:59 AM |
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Kaitlyn747
LIF Toddler
Member since 6/10 399 total posts
Name:
Kaitlyn
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Re: Transfer to IRA or cash out? WWYD?
I think you should roll it over for sure!!!
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| Posted 8/10/10 10:43 AM |
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smdl
I love Gary too..on a plate!
Member since 5/06 32461 total posts
Name:
me
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Re: Transfer to IRA or cash out? WWYD?
Roll over! I make a point to not touch any retirement money!!!
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| Posted 8/10/10 11:12 AM |
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MrsBlueSash
Love my sailor
Member since 6/05 5793 total posts
Name:
Christian
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Re: Transfer to IRA or cash out? WWYD?
I'd roll it over.
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| Posted 8/10/10 12:52 PM |
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