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No longer with company, how do I withdraw funds?

Feb 27, 2013 by John from Oxon Hill, MD in  |  Flag
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6 votes
Peter C. Karp Level 20


First of all, you should review your summary plan description (SPD) to find out what options are available to you from your prior employer regarding distributions from your 401(k) plan. You should also determine if there are any employer matching contributions, profit sharing contributions or if there is a defined benefit plan as there may be vesting schedules that need to be taken into consideration as well. If you do not have the SPD you will need to contact your former employer to obtain it. You can also call the number on your statement to contact the 401(k) provider directly and review your options.

There are a couple of basic options that are typically available to withdraw funds from your former employer’s 401(k) plan: 1) you can roll the monies into your new employer’s 401(k) if your new employer allows 2) you can roll the monies into an IRRA (individual retirement rollover account) which you will need to set up ahead of time. Be sure you do a trustee to trustee transfer in either case to avoid taxes or penalties or 3) you can cash out and face potential taxes and penalties depending upon your age, vesting schedules if applicable and the provisions of the SPD. If you would like more information you can call us at 415-345-8185 or email peter@karpcapital.com.

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Financial Telesis Inc., member SIPC/FINRA. Financial Telesis Inc. and Karp Capital Management are not affiliated companies.

Comment   |  Flag   |  Feb 28, 2013 from San Francisco, CA

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4 votes

ditto above unless you own company stock within your 401k or you are over age 55. If over 55 you could withdraw funds directly from the 401k without penalty (see your tax advisor). If you own company stock and it has appreciated significantly you may be able to distribute the stock and pay taxes on the cost basis at ordinary rates and get capital gain rates on the growth. Again, see you tax and financial advisor.

Comment   |  Flag   |  Feb 27, 2013 from Grandville, MI

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3 votes

I assume you're talking about a 401(k) program. You can contact your old HR department or go to the website on your statement. Better yet, instead of paying taxes and penalties (say goodbye to 25% or more of the money!), why not roll the money over into an IRA?

Comment   |  Flag   |  Feb 27, 2013 from Las Vegas, NV

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Kevin J. McNab Level 19

You have a couple of options to "withdraw" the funds. You can take a distribution directly to you or you can rollover the 401(k) to an IRA at the company of your choice. A direct rollover of your 401(k) to an IRA is not a taxable event. A distribution directly to you will be subject to ordinary income tax and possibly a 10% penalty if you are under the age of 59.5. Either way, you can contact the number on your 401(k) statement or contact your HR department to get that information. I hope this helps.

Comment   |  Flag   |  Feb 27, 2013 from Westminster, CO

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3 votes

Hello John,

When you leave a company and have a 401k or other qualified retirement plan that remains, there are several options that allow you to get your money out. Typically, your plan statement will give you the contact information for your plan. Pulling money out of a 401k nearly always requires a phone call, which should be listed on your statement. Occasionally transfers on the web are available, but the phone call option typically covers 90% of 401k withdrawals.

Generally there are two most common options. Cash Distribution, and Rollover.

Cash Distribution: You may get some or all of the money in cash if you want. If you are under age 55 and choose this options, there will be a 10% tax penalty. Additionally, no matter what your age, the plan will have to withhold 20% in taxes if you take a distribution. The tax and the penalty is ALSO considered a distribution - so there is tax ON tax - so be careful.

Rollover: You may execute one of several types of "rollover" actions which will NOT be taxable at the time you do it:

1) A Rollover, 2) A Direct Rollover, and 3) A Direct Transfer.

1) A Rollover is when they send YOU the check - and YOU cash the check, then deposit the funds into an IRA, or your new company's 401k if you have another job. This is dangerous, because they must withhold the 20% anyway - and then you have to come up with the extra 20% out of pocket to put in your IRA or 401k if you want to avoid being taxed on the missing 20% at the end of the year. So generally, my advice is to try to avoid the Rollover. The plan cannot send you the check without the 20% withholding.

2) A Direct Rollover is when they send YOU the check - but the check is made out to YOUR IRA or your NEW 401k (and not you). You simply endorse the check over to your IRA or your 401k. You cannot cash the check. In this instance, they do not have to withhold the 20% tax. Generally, I recommend this strategy and use it with clients all the time.

3) A Direct Transfer. In some instances, with the more sophisticated 401k's that are administrated by the bigger firms (Fidelity, JP Morgan, etc) they can electronically SEND your old 401k proceeds to your IRA or your new 401k. It goes as a wire transfer, it is usually free, and you never have to touch the money. Generally, I recommend this strategy as well. Typically, you will only know if this strategy is available to you once you have called your old plan and they know where they will be sending the money, as some institutions are not set up to receive Direct Transfers.

So... armed with this information - step one is to get on the phone and call your old plan. It is usually an easy call and the representatives are usually quite helpful. You may need a "pin number" to access the plan; if you don't have it, press "0" several times and you'll get a human who can help.

Jon Castle http://www.WealthGuards.com

Comment   |  Flag   |  Feb 27, 2013 from Jacksonville, FL

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1 vote

John, you are likely either going to retire some day, or die trying. Retirement plans are intended for retirement, and except for dire emergencies, should only be used for retirement. I know you think you will never get old, but just wait; it will happen. If you withdraw funds from your 401(k) and you are under 55, you will have to pay income tax, plus a 10% penalty.

You can open a ‘rollover’ IRA, and roll your 401(k) into that. You will have more freedom in investment choices, and overall have more control of your money. Just consult a local financial planner and they can do it for you

Comment   |  Flag   |  Mar 08, 2013 from Delray Beach, FL

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