Cashing Out The 401k Plan

If you are thinking of cashing out the funds that you saved in your 401k plan, then I suggest you think again. You might be going through financial difficulties right now, but in reality, if you cash your plan, it is going to cost you money both now, as well as in the future.

If you are in between jobs, or just waiting around for the next job to come by, then here are your options:

• Keep the funds in your old 401k plan

• Roll the plan over into the 401k plan, which your new employer offers.

• Roll it over into an IRA

• And finally you may cash your 401k plan, and suffer the penalties.

The best thing you could do before making your decision is consult your financial advisor or accountant. Cashing out your 401k plan, should be seen as the last resort in many cases.

Keep in mind that cashing out will cost you more, than using your credit cards to manage until the end of the month. Just to get an idea, if you decide to withdraw your 401k funds, you will have to firstly pay a hefty 10 percent penalty charge, which there is no way of getting around. You will also have to pay a tax percentage which runs around the 30 to 40 percent.

You should also consider that if you withdraw your saved funds, you will have to start from scratch, saving for your retirement age. If you’re in your forties or late thirties, then you might never accumulate again the required amount to see you through your retirement appropriately.

So at the end of the day, don’t just consider the charges and penalties, but also consider the effects that this withdrawal will have on your future.

Reference: http://hubpages.com/hub/Cash-Out-401k