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All is Vanity
See other All is Vanity Articles

Title: vanity: 401k help please!
Source: me
URL Source: [None]
Published: Jan 29, 2008
Author: me
Post Date: 2008-01-29 23:32:47 by kiki
Keywords: None
Views: 437
Comments: 12

ok, I have this 401k from a job I had a few years back. I left the job and left the 401 account, and kinda forgot about it. my current job doesn't have a plan.

I'm horrible with money and have a good deal of high interest credit card debt.

so last week, I was home sick and bored and actually opened a 401 statement and was shocked on several levels. first, I was surprised at how much money was in it, not a fortune (about 68k) but way more than I ever paid into it. second, in the last quarter of last year it lost a little more than 6%.

so I thought why am I carrying debt and paying all this interest while this money is sitting there, gradually being depleted? I called and told them to send it to me. they made me talk to a counselor, who was good but couldn't change my mind.

I also found out it's lost another 4% in january, since the statement I was looking at. I wish I'd gotten it last september, but then I'd be dealing with it on this year's taxes.

so I will get this check and pay off my debt, cut up my credit cards and try to live within my means. but there will be money left over. I understand that I have 60 days to put it in an ira to avoid part of a 10% penalty.

this is my question: if I put it in an ira and that tanks like my 401 was doing, then I'll have nothing, right? if I pay the penalty, I'll have whatever's left over. that's seeming like a better way to go to me. what should I do? do I have other options?

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#1. To: kiki (#0)

They talk you out of it because they want your money.

Get the loot, pay off the debts, put the rest in the bank or a sock and sleep better at nite.

Cynicom  posted on  2008-01-29   23:35:59 ET  Reply   Trace   Private Reply  


#2. To: Cynicom (#1)

Get the loot, pay off the debts, put the rest in the bank or a sock and sleep better at nite.

thank you! that's what I'm thinking. I hate to pay the penalty, but I'd rather lose some of it than all of it.

my husband thinks I can put it in some kind of cd and avoid the penalty. I like the sock idea myself.

kiki  posted on  2008-01-29   23:51:29 ET  Reply   Trace   Private Reply  


#3. To: kiki (#2)

I had a family member that has lost his shirt with 401..I am sure there are winners but prudence sometimes is best.

There are ways to "manage" money yourself and keep the reward yourself. It takes creative thinking to outwit the tax man. Wealthy people have accountants and shysters to do it, poor people have to do it on their own.

Cynicom  posted on  2008-01-29   23:56:05 ET  Reply   Trace   Private Reply  


#4. To: kiki (#0)

There's always Vegas.

Ron Paul for President - Join a Ron Paul Meetup group today! The Revolution will not be televised!
I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.-T Jefferson

robin  posted on  2008-01-30   0:44:14 ET  Reply   Trace   Private Reply  


#5. To: kiki (#0) (Edited)

Do you prefer Microsoft sock or Apple sock?

nobody  posted on  2008-01-30   0:54:51 ET  Reply   Trace   Private Reply  


#6. To: kiki (#0) (Edited)

You have a variety of options at your disposal.

If you do not currently own a house you can use it, without penalty, for a down payment on a first home.

However, while it is tempting to pull it out and pay down debt, which if it was a large cash distribution, is what I would suggest; with 401K money that is not as wise. With a 401K the laws are set up such that you would pay a huge penalty for early withdrawl - the regular tax rate PLUS a ten percent penalty.

However, leaving it in dollar denominated assets would be insane in the current inflationary environment. (Real inflation is somewhere over 10% and likely well over. I have seen the figure 13% but that was before the FED starting pumping Billions of liquid dollars into an already inflated environment.

You can, contrary to popular myth, purchase gold in an IRA. I would suggest that would be wise for at least 40% of your money. Gold, with inflation factored in, is still well below its historic high.

Swiss Franc denominated assets, the Swiss Franc IS backed by Gold, would be a safer harbor. Doing that directly from an IRA is unlikely. However, one of my favorite dodges here is a Closed Ended Mutual Fund called the Swiss Helvetia Fund. If you are not familiar with Closed End Mutual Funds - they, unlike a standard mutual fund which issues an open ended number of shares as people buy in, have a fixed number of shares which are issued in an initial offering like any other stock and then traded on a Stock Exchange. The Swiss Helvetia Fund, which is a single country fund invested in Swiss companies, and regularly pays a dividend, is sold on the NYSE. It has long been one of my favorites as it is soundly managed, and it operates in Swiss Francs thus isolating you from dollar risk. While, with a general stock market crash, the share value could go down on the exchange the assets of the fund will still be backed by Swiss Francs and is likely to retain its Net Asset Value. With only 68K to invest I would suggest a prudent move would be 30K in Gold and 38K in the Swiss Helvetia Fund.

"The difference between an honorable man and a moral man is that an honorable man regrets a discreditable act even when it has worked and he is in no danger of being caught." ~ H. L. Mencken

Original_Intent  posted on  2008-01-30   1:29:50 ET  Reply   Trace   Private Reply  


#7. To: kiki (#2)

First of all you have a good problem even though I know you don't want to deal with it at all. That stick it in a sock tells me that. I am not very knowledgeable on 401k's or IRA's even though I have one of each. I've made 320% in my 401k over the last 5 years and nearly doubled the IRA in about 18 months. So there is money to be made in these investment vehicles but I've paid my dues in losses and lots of time spent learning what and how to invest.

You'll need to roll that 401k into an IRA. Easily done. The problem is as I understand is that you cannot withdraw money from it without a financial hardship like a foreclosure or something like that. So it would seem paying off your CC debt is out of the question but you can put the IRA into a place that can loan you money against your IRA to pay off those credit cards. Do not put your IRA into a bank as some banks are in serious trouble with this sub-prime business and it's possible they could go under. I'm not kidding. Do not give your money to a broker who will most likely lose more money for you. This has happened with me. I wised up. Nobody cares about your money more than you do. Do not deal with ANY financial institution that is involved with these sub- prime loans.

Ok, what to do. Call a couple banks and brokers to make sure of the information about the financial hardship case and see if I'm correct on that or if there is another way to take money out. If you can do this without signing up do it. If you find yourself getting talked into doing business with a bank or a broker hang up like it's a pervert caller. I would then look for a good (or 2) NO LOAD mutual fund(s). Of course I could put a hundred or so caveats on that. Most mutual funds I would not put a .25 in them because I believe they will go down in the long run.

At this point you want to find a place where you can put your money to work for you and pay you in capital gains while you're watching TV or whatever. A sock just does not have that capability. Do some initial ground work and find out your options. Then choose the one that seems best for you now. You can always switch investments later. The best to you.

jwh_Denver  posted on  2008-01-30   2:19:09 ET  Reply   Trace   Private Reply  


#8. To: kiki (#0)

However, while it is tempting to pull it out and pay down debt, which if it was a large cash distribution, is what I would suggest; with 401K money that is not as wise. With a 401K the laws are set up such that you would pay a huge penalty for early withdrawl - the regular tax rate PLUS a ten percent penalty.

The above is great advice. Explore all your options before you pay these huge penalties.

First, ask the question:
after paying all the taxes and all the penalties, how much will you actually get.

Some 401K's will allow you to move your money from stocks into funds that are very low risk,like bank savings account risk.

Some 401K's will allow you to borrow from your 401K with no penalty, and then you pay your loan back paying yourself interest.

If that is an option, you might consider borrowing your 401K money and paying off your high interest debt with the loan. You'll be getting a guaranteed rate of return on the amount you borrow.

honway  posted on  2008-01-30   2:34:44 ET  Reply   Trace   Private Reply  


#9. To: honway, kiki (#8)

Some 401K's will allow you to borrow from your 401K with no penalty, and then you pay your loan back paying yourself interest.

If that is an option, you might consider borrowing your 401K money and paying off your high interest debt with the loan. You'll be getting a guaranteed rate of return on the amount you borrow.

That is an excellent point.

Paying yourself back, at say 6%, is better than paying the Credit Card Company 18-23%. You get rid of the debt and the extra interest paid back into the account is an extra contribution to the account - which accumulates tax free. Credit Cards are a money sink and should only be used for emergencies and otherwise should be paid off monthly.

However, under all other scenarios I am very Bearish on the dollar. The FED, and Duhbya, are pumping cash into circulation at a rate that makes any conventional paper investment a certified loser. The effective inflation rate is well over 10 percent. Gold is holding at over 900 dollars an ounce (It closed at 923 today) - 6 years ago it was under 300 dollars an ounce (bottom was 248). That reflects an inflation premium. Silver is moving very slowly and has more room to move up and so may be a better buy at this point. Silver is still 10 dollars an ounce above the 7 dollars it was at 6 years ago. Gold and Silver will hold value in an inflationary evironment. Gold could very easily top 1200 to 1500 dollars within the next year.

Any standard Paper Investment yielding less that 12% OR BETTER is losing value by the minute.

"The difference between an honorable man and a moral man is that an honorable man regrets a discreditable act even when it has worked and he is in no danger of being caught." ~ H. L. Mencken

Original_Intent  posted on  2008-01-30   3:00:21 ET  Reply   Trace   Private Reply  


#10. To: kiki (#0)

If you do the 1040 game then they´ll expect not only the 10% penalty but regular taxes as well. That´ll hit you pretty hard, probably.

You can roll it over into a precious metals IRA that doesn´t rely on stocks. If you did that a year or 2 ago you´d be real happy now.

Though some here expect a major crash to com with severe deflation as credit money disappears. That would mean paper money would be a good investment.

But I´d definitely go with a PM IRA before doing a stock market IRA.

Pinguinite.com EcuadorTreasures.ec

Pinguinite  posted on  2008-01-30   17:52:30 ET  Reply   Trace   Private Reply  


#11. To: Pinguinite, Original_Intent, jwh_Denver, honway, Robin (#10)

thanks so much everyone! I just knew I'd get good advice here! now I have much to think about - oy.....

Robin, of course my favorite advice is to go to vegas. but one thing I've learned - the money I take to vegas, stays in vegas :)

kiki  posted on  2008-01-30   22:08:27 ET  Reply   Trace   Private Reply  


#12. To: kiki (#11)

You did get some good advice and I'm glad to see that. Gold and gold stocks are how I made my money and gold is still going to go up tremendously (it hit a new high today). The gold advice and the shrinking dollar advice is very good and as you can see there are a number of ways to do that. That financial hardship thing I talked about is pure BS. I had talked to a human resource person who works for a big company and just slapped it in there. After I thought about it late last nite I realized it couldn't be true.

Don't hestitate to ask someone here for advice though you will always make the decision on what you will do. Email them if you want to go underground. Again, the best to and for you.

Here is a gold chart. As I said there is plenty of room for it to go up.

http://tinyurl.com/2tycp6

Flip that chart upside down and it would look like the US dollar chart. Not funny I know.

jwh_Denver  posted on  2008-01-31   1:39:46 ET  Reply   Trace   Private Reply  


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