No. of Recommendations: 0
Greetings, Kewdah, and welcome.

<<Having recently found TMF in the book store i have a question about my 401(K).....being new at investing im still kinda lost with this ....i have a 401(K) with a pretty low cash-out value (4500.00)....and was wandering that since i am still kinda young if it would be foolish for me to cash it and reinvest in something like the foolish 4 through an on-line broker like datek?>>

Well, that all depends. First, you don't have to cash it in and incur needless taxes and penalty to invest on your own. If this is a 401k from an old employer, you can simply have it transferred to a self-directed traditional IRA with a broker of your choice. The broker knows how to do that and can guide you through the hoops so there's no tax problems. Once the money is in the IRA, you can then transfer the money to a Roth IRA and incur ordinary income tax only or just leave it alone in a traditional IRA. At your age, I would be sorely tempted to pay the taxes now and go with the Roth so years from now I can take all of it free of tax. If you go the Roth route, you can spread the $4,500 as income over four years which could lessen the immediate tax bite. Of course that assumes you won't move to a higher bracket in that period.

OTOH, if this is a 401k you have with your current employer, you can't move the money at all. Invariably, the only way you'll be able to receive a distribution from a 401k is if you retire, leave your job, or die. I don't suggest the latter as the preferred course of action, though.

As I said, your ability to do anything with that money depends on the status of your 401k participation. Still working at the same place? You can't do anything. Have it with a former employer? Move it to a traditional IRA and then choose to stay there or go with a Roth.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.