| Use rule of 55 or not on 401K? |
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eaglerockdude
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| Use rule of 55 or not on 401K? |
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I was laid off last year the same year i turned 55. Based on all my internet research and speaking over the phone with someone at IRS(not really tax accountants or anything) it sounds like I can withdraw my 401K and pay tax only with no early withdrawal penalty.
The reason I am considering it is because I am thinking that I am unemployed(my wife works as a nurse) so my overall income will be less this year which may mean lower tax bracket, and (2)...I am thinking with inflation and the investment options I have under the 401K, I can do better just freeing up that money to invest in something other than mutual funds.
i DO realize the risk and I could lose the money...but having lost a lot in the past I think I have learned enough about the market for it not to happen again. I use a more disciplined approach now with a plan and stops.
Of course the tax bite no one likes, but you will be paying it at sometime anyway right? No way around that. Maybe I could even by a rental or something..
So I guess I am looking for some feedback. Is it better to let the money sit, or take it out now while I have the chance. I am on the fence.
Ken
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Tue Jan 11, 2011 8:47 pm |
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oldguy
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quote:
I am thinking with inflation and the investment options I have under the 401K, I can do better just freeing up that money to invest in something other than mutual funds.
If your options in the 401k are limited, you can roll it into an IRA at a no-load company such as Vanguard or Fidelity ( I would do that anyway). Then you can invest in anything that you like - mutual funds, index funds, individual stocks, bonds, CDs, etc. As for inflation - what inflation? There hasn't been any for 3 yrs - and none appearing on the horizon. Altho maybe in a few yrs?
Yes, there is an option to take 401k money at age 55 - several rules, you must do it for a min of 5 yrs, meet some later requirements if you want to wait until the normal age 70 1/2, etc. But if you have some 'living' money, I would avoid the age 55 thing and preserve your right to let it grow until age 70 1/2. You say that you will be in a low tax bkt this yr due to the layoff - that will also be the case when you are age 70 1/2. (I like a market index fund, they returned 15.1% for 2010.)
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Wed Jan 12, 2011 2:22 am |
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eaglerockdude
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Thanks for the reply. I do have IRA's where I can invest in stocks, and rolling the 401K into one is an option. However once you do that, you cannot get the penalty waiver.
About the inflation comment, I guess what I was really saying is the dollars losing its value, although lately is is coming back no matter how much money the fed prints.
Like I said...I am on the fence...I suppose I feel like its my money and I don't want to wait till I am 70 where my mind and body may not be able to make as much use of the money as now...I am not interested in getting old anyway if that makes sense. Every example I have seen of it(my dad for example)..he has security with his savings..but his life is lifeless..I don't know if the money is really doing much for him at this point...he won't risk or spend it..and will just die with it there...so thats not me I guess...probably crazy but thats me.
But thanks for you comments very much.
Ken
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Wed Jan 12, 2011 4:29 am |
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coaster
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quote:
Originally posted by eaglerockdude
About the inflation comment, I guess what I was really saying is the dollars losing its value, although lately is is coming back no matter how much money the fed prints.
The long-term trend of the value of the dollar has been down since the Federal Reserve was created. Short-term moves shouldn't be used for long-term planning.
That being said, my own opinion is we may be looking at the beginning of a period of world-wide competitive currency devaluation, so the direction from here could be anybody's guess.
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Wed Jan 12, 2011 6:53 am |
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oldguy
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Cash: $ 309.30
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quote:
I suppose I feel like its my money and I don't want to wait till I am 70 where my mind and body may not be able to make as much use of the money as now..
You've been watching that TV commercial - IT'S MY MONEY AND I WANT IT NOW! LOL
quote:
lifeless..I don't know if the money is really doing much for him at this point...he won't risk or spend it..and will just die with it there
His money might be doing more than you know - a sense of accomplishment of a life's work, security, contentment. Being old and broke (a self-assessed wasted life?) is probably an even worse feeling.
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Wed Jan 12, 2011 3:28 pm |
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eaglerockdude
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I guess since there is no penalty it really comes down to whether I want to pay the taxes now or later...either way I will pay them. Don't like it(who does) but I haven't figured a way around that.
I guess I was a little harsh about my Dad..its just that sometimes I wonder if he had just been willing to take a little risk how much more content he might be..but hey...I am glad I don't have to support him!
Nice chatting with u.
Ken
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Wed Jan 12, 2011 4:40 pm |
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