Early distribution from 401(k) or IRA

[dyne2]

Does ANYONE believe that it is a good thing to withdraw EARLY funds from a 401(k)
or IRA's BECAUSE (and ONLY because) the balance in the 401(k) or IRA's has decreased
in value? I contend that it is DUMB!l Comments? By early I mean before retirement.

[Snaggletooth]

Yes I do

In fact, I began doing so years ago.

For economic as well as tax reasons. Every 401k plan I have analyzed skims off 3-4% off the top, and then advertises full-up rates. "Managed plans" fee for their very outstanding [sic] performance.

In lieu of this, I have a combination of low-admin funds and individual stocks. I have around 35 securities that I don't have to worry about paying tax if I cash them out or having to pay tax when I reach 71. Out of these 35 securities, I can always find 3-4 individual stocks that have lost money by December, and I can sell them and deduct the loss. I can simply "sit" on my gains and not pay tax on them until I choose to sell them.

Yes, I receive taxable dividends, and pay 15% tax at the most. Compare this to a 401k that earns 9%, is reduced to 6% on account of fees, and then whatever is left becomes taxable to me at ORDINARY INCOME rates in the future.

Most people are not aware of the economic price they pay just to have their income sheltered from taxes in these managed plans.

Also if someone has had their plan reduced from $200,000 to $100,000 and believes the investments will come back, and they can stomach paying on withdrawing the $100,000, then the comeback gain of $100000 will be taxed at capital gain rates. Leave it in the plan and it becomes ordinary income at some point -- even if you die, it is ordinary income to your devisees. Not only that, but the $100,000 builds back quicker because of not having the custodian rake his fees off the top.

[dyne2]

Snaggletooth: Thank you for your comment. You are outnumbered. EVERYONE else
on three message boards contend that it is a BAD IDEA. Notice I said that the REASON
several clients withdrew the fund was BECAUSE the balance in the 401(K) or IRA
declined, due to the stock market decline I imagine. THAT is the ONLY reason they
obtained an early distribution. But they did not loose money necessarily due to the
decline in their retirement account. It could and should come back. Of course, the
world may come to an end. They locked in their loss when they withdrew the funds.
The lady expert on TV said NOT to withdraw such funds and instead she recommended
that employees INCREASE their contribution to their 401(k) or IRA. It is similar in
some respects to selling your residence at HALF your cost. Instead BUY investment
houses which should increase in value. This IS a complicated issued.
I was not able to post messages on this message board for several weeks due to a
problem with my password, etc. Any comments from others or again from Snaggletooth?

[Snaggletooth]

By the Way...

I notice you are Dyne2. Are you the same as Dyne? or maybe related to him?

I knew the former agent from Rock Hill, SC.

[RitaB]

One stupid thing people do

is borrow from their 401(k). Had a lady in here bragging about doing this in the "nick of time" before the market went down.

OK... So when you pay this back, you will be (in essence) contributing taxed dollars into a retirement fund which you will later withdraw and pay tax on again.

Yeah, lady, you are an investing wizard.

[dyne2]

Snaggletooth:

Yes, it is me:dyne.
My computer would not allow me to post on the message board so a very nice
gentleman from THETAXBOOK called me and assigned me as:dyne2. I never figured
out what went wrong with the original dyne sign-in. I have been trying to access it
but so far it will not work. I will be 73 years old soon, so have already begun RMD
withdrawels. Best wishes. I enjoy your comments.
dyne

Fred

Rock Hill, S. C. just below Charlotte, N. C. and Carowinds.

[Burke]

Does ANYONE believe that it is a good thing to withdraw EARLY funds from a 401(k)
or IRA's BECAUSE (and ONLY because) the balance in the 401(k) or IRA's has decreased
in value? I contend that it is DUMB!l Comments? By early I mean before retirement.

What many people do not understand, is that they do not HAVE to invest their 401k's in the stock market. All of these accounts have other options such as bonds, fixed rate investments including money market funds, CD's, etc. I have had to explain to many clients that they can move their investments around without withdrawing the monies, and also change their investment options for future contributions without changing what is already invested. Most are babes in the woods when it comes to managing their own money.

[dyne]

Thank you Burke.
I FINALLY fumbled around and managed to access this message board under my
original name: dyne. I must have forgotten my password although I tried many times to
no avail. Any other comments would be appreciated!

[DTS]

CDs

What many people do not understand, is that they do not HAVE to invest their 401k's in the stock market. All of these accounts have other options such as bonds, fixed rate investments including money market funds, CD's, etc.

Burke,

Something dawned on me while I was reading your reply to dyne. If the 401 is invested in CDs, will the firm keep the acct under the insured threshold and have a few CD accts or is it invested as one large CD? Does the employee even have an option like this?

Thanks,

D