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How can i cash in my retirement?

Jun 06, 2013 by randy from Deer Park, TX in  |  Flag
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7 votes
Alex Bentley Level 18

If you are before retirement age, the worst thing you can do for your future is to cash in any retirement accounts. You will pay a penalty and seriously hurt your retirement. Personally, I'd rather let my house go into foreclosure or have my car repossessed before I cashed in my retirement early. If you are in retirement, contact your custodian and they will give you info on required minimum distributions. They can also cash you out early if that is what you are determined to do. Your custodian should be listed on your statement.

Comment   |  Flag   |  Jun 06, 2013 from Pacific Palisades, CA

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5 votes

Even if you have reached that magical age of 59 ½ and can avoid the extra 10% penalty on withdrawals, if you cash out your retirement account you will be triggering a taxable event. I, of course, am making an assumption on the limited information provided in the question that you are not just moving to more liquid assets, but you actually mean you are contemplating a complete “cash-out” of the retirement account status. I have encountered a few people, having not consulted with a qualified professional first, who have done this in the past and later regretted it.

Think of the retirement account, whether it is a 401k, 403b, IRA or some other type of tax deferred account, as a bubble that your assets are held in. While they are in that bubble, they cannot be attacked by the tax man. I am not giving tax advice here, but as an example, if you remove some of your cash from the bubble (as in taking your required Minimum distribution after age 70 ½) whatever portion you remove is added to that years taxable income. If your RMD for any year is $10,000 or so, it shouldn’t increase your tax rate that much in any year, and law requires you do it anyway. However, imagine if you took all of your assets out of the bubble; it can be catastrophic. If a retiree cashes out and moves say $300,000 out of the retirement bubble in any year, it is likely you could rocket up the tax rate ladder and pay a significant tax bill depending on your other income. I don’t know how much that would be but two words pop into mind-six figures!!

Remember it’s not always what you make, it’s what you keep! Consult with an advisor and/or tax planner.

Comment   |  Flag   |  Jun 07, 2013 from Malvern, PA

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4 votes

Randy,

It depends on what you mean by retirement (I'll need a little more information). If you are under 59 1/2 and your money is in an actual retirement account (401k, IRA, 403b, etc.), you may only be able to take it out under certain specific circumstances.

If you have a pension, there will be some distribution options that you will have to follow in order to get cash (some offer lump some payments, others have to be distributed over time).

So maybe you could provide a few more specifics. Where is your retirement, how old are you and what is your situation?

Mike

Comment   |  Flag   |  Jun 06, 2013 from Apex, NC

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Rich Winer Level 20

To cash in a retirement account of any kind, you would need to complete distribution paperwork that can be obtained from the brokerage firm or plan provider. The amount and nature of your distribution will be reported to the IRS. As Michael and Alex pointed out, you can't liquidate all types of retirement accounts. Also, if you are under age 59 1/2, you will have to pay taxes and a 10% early withdrawal penalty on the amount of your distribution. If it's a Roth IRA, you would pay taxes and a penalty on any growth. Finally, it's rarely ever a good idea to cash out a retirement account because you will lose future tax-deferred growth on the money you withdraw and it could take years to rebuild your retirement savings to pre-withdrawal levels. You might want to consult with a financial advisor who might be able to suggest a way to meet your need for cash without having to liquidate your retirement savings. Good luck.

Comment   |  Flag   |  Jun 06, 2013 from Woodland Hills, CA

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Peter C. Karp Level 20

Randy,

The purpose of your 401k retirement plan (assuming this is what you are referring to) is to provide for your golden years. There are times, however, when you need cash and there are no viable options other than to tap your nest egg. For this reason, the government allows plan administrators (employers) to offer loans to participants in a 401(k) plan. Be aware that the government doesn't require this and therefore it is not always available. There are certain restrictions and guidelines for withdrawing funds from a 401(k). You will need to contact your employer or review your summary plan description to find out the options available in your specific plan, such as a loan feature, in-service withdrawals after age 59 1/2 or hardship withdrawals. If you are currently employed, these are your only options for withdrawing funds prior to retirement or termination of employment.

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   |  Jun 10, 2013 from San Francisco, CA

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1 vote

I am assuming you are of retirement age and you have money in a 401(k). If you stopped working for the company at age 55 or older, or the you reach age 59 1/2, you can take distributions that are taxable, but you won't pay any penalty. If you are younger, there is a 10% penalty.

The way to access your money in any instance is to contact your plan administrator. Get the number for the plan administrator from HR. They will walk you through their procedure to take withdrawals.

If you have a defined benefit, or pension plan, where they promise you a monthly amount at retirement, you may or may not have an option to take a cash withdrawal. Every plan is different. Again, your plan administrator can guide you as to your options.

And here comes the lecture. Too many people, and we don't know if it applies to you, spend all their retirement savings before they reach retirement age. It makes us, financial advisors as a community, cringe. That's because, however badly one feels they need the money now, we know, because we deal with seniors daily, unless you have a large inheritance coming, you will need it more when you reach retirement age. Many people can't retire because they have to work.

So if this applies to you, please think twice before spending what was earmarked for your retirement. There are tax advantages meant to encourage you to save, and there are tax penalties to encourage you to not spend prematurely

Comment   |  Flag   |  Jun 07, 2013 from Delray Beach, FL

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