What would you do? Hypothetical (sort of)

guitarwes

Say you'd have about $20,000 after taxes/penalty if you cashed out your 401k right now. Would you buy pm's on the next dip (if there is one) or leave it alone let it ride in the market and see what happens? All of your shares are in long term growth stock mutual funds without any choice of specific stocks. You have some consumer debt which will be paid off in the next couple years. You have a seperate slightly larger retirement fund of the same particulars other than the one you're thinking about cashing out. You have 25 years until you plan to start retiring.

MsMorrisine

no option to roll it into another retirement vehicle?

JCMhouston

Cashing out the 401k and paying a penalty puts you way in the hole to start, PM's would have to go on quite a run to make up for that.

secondrepublic

Honestly, I would put $19,000 of it on paying off the consumer debt, and put $1,000 on PMs just to have something to play around with. PMs are speculative up or down, but the consumer debt payoff is a sure thing.

derryb

Your options are limited depending on your plan and who is the custodian of it. Talk to a tax professional about converting it to a self managed ROTH IRA with an online broker. I did this a few year back and it has been very profitable.

downside: You will pay income tax on the converted amount, but you were gonna pay taxes on it anyway sooner or later. In my case I was able to take part of the converted amount as a cash withdrawal (I chose 20%) which I used to pay the required quarterly income tax in the year of the conversion (withdrawal). My 401K was actually a federal employee thrift savings plan.

upside: The money converted (my remaining 80%) and any gains it sees grow tax free. Current IRA tax law states that future withdawals of the principal or it's gains will not be subject to income tax if it is a ROTH IRA (because it was taxed when the account was funded). By having it in a self managed on-line brokerage ROTH account, you place the buy and sell orders. You are free to buy and sell anything that is traded on US exchanges. I prefer levereaged metal ETFS. I choose between some that make me money when metal prices go up and some that make me money when metal prices go down (inverse ETFs). Profitability is determined by being successful at knowing when to sell one and buy the other. Trade what works for you, but stay on top of your investments. Note that if you withdraw your current IRA and buy physical metal with what's left after taxes, you are going to pay at least 28% on the gains everytime you sell the metal (collectable investment tax).

The conversion method is the only allowable way to fund a ROTH IRA with an unlimited amount of money at one time. You are limited only by what you have available in a regular IRA to convert and are able to pay taxes on when you do convert. If your current account does not allow you to take part of your conversion as a cash withdrawal you will have to come up with the taxes from other sources. This is a major way to minimize future taxes which we can safely assume will only go up.

OPA

derryb advise is excellent. In your case, since your 401k is relative small, I would just keep where it is. Sounds like a conservative fund which probably is not subject to major market swings like some of the aggressive funds. Keep in mind, you'll get hit with a 10% early withdrawal penalty in addition to the amount withdrawn subject to ordinary income tax rates if you make a withdrawal.

tneig

The question was: "Would you buy pm's on the next dip (if there is one) or leave it alone let it ride in the market and see what happens? "

Here's background on the money in limited backgrd info first:.............................
Both amounts mentioned is not enough saved for a 40yr old. Need much more in the pot now. Focusing on methods to get more in, putting that in the PMs. Keep putting the new money into the pms. (Certainly do/continue with the matching amount going into the 401 plan.)

%40 loss right off the bat sounds drastic to me, so I'd say Caution. Unless one is savy with a plan in this venture. -Is the shift to PMs giving the security I assume is desired vs the loss during the conversion? Is the risk weighed? Do you have a pension plan? I maybe would have considered this more when the PM price was much lower or like this last big dip.

Why can't it be moved over to PM investments still under the 401k status. I converted all my 401ks from previous jobs to under my control and move the contents around to other IRA funds as I choose. I use the big fund families like Rowe or Fidelity and they have broker services.


The answer to the original multipart question:
a"Would you buy pm's on the next dip (if there is one)" or b"leave it alone let it ride in the market and see what happens? "

I don't like buying anything high. One would have to be prepared for big swings, and what period of loss/recovery could one tolerate and would ya stay up all night regretting or worrying... I'd buy only on dips on an averaging plan, and buy more on substantial dips.

I'd do half the deal first, leaving the other half in the 401. I'd move stuff left in the 401k to what was my best choices in the market, either being safe low risk or levels up to higher risk.

derryb

Taking any action other than leaving it where it is boils down to this: Will you be able to recoup the expense of withdrawing it (taxes and penalty) AND get a better return with your new investment.

My earlier post to your question was to provide you with an alternative that allows you to continue building a retirement that benefits from the metal bull trend and frees you from taxes on anything you can grow it into and all future withdrawals.



<< <i>Why can't it be moved over to PM investments still under the 401k status. I converted all my 401ks from previous jobs to under my control and move the contents around to other IRA funds as I choose. I use the big fund families like Rowe or Fidelity and they have broker services. >>


sounds like you "rolled over" the 401ks to like type accounts. "Conversion" is a taxable event that involves moving the funds from a taxable, regular IRA to a tax free ROTH IRA. All money that goes into any type of IRA account gets taxed. The difference is when it gets taxed and the taxable status of all of its futures gains. The advantage to paying the taxes now and making the conversion to a ROTH is that the account balance and all of its gains are tax free down the road. OP is gonna pay taxes on his retirement fund either now or later, so you can't consider that a penalty if he takes the money out now. If he is not eligible to make withdrawals he will pay an additional 10% penalty for not waiting it out. The question he needs to ask himself is "do I want to pay taxes on everything in the account as I withdraw it upon retirement or do I want to take advantage of paying the taxes now before it grows into more money." His current tax rate now compared to his projected tax rate down the road should also be a consideration. I don't see tax rates going down for anyone with income.

Given a choice, the ROTH is always the preferred account to be holding upon retirement. Your options are much better with a self managed on-line brokerage IRA account (such as Scottrade) that gives you many more investment options than an account that allows you to choose from only a handful of mutual funds. Mutual funds normally have high fees and trading restrictions. ETFs are designed to provide the variety of a mutual fund but give you the ability to trade, with a symbol, anytime during the trading day at the same fees you pay to trade stocks (Aprox. $7 with my on-line broker). ETFs trade the same as stocks.

As I said in the earlier post, for those that can handle the immediate tax consequences, conversion to a ROTH is a rare opportunity to put all of ones taxable retirement fund money into a tax free retirement fund. It is the only way to deposit a whole lot of money into a ROTH. The only limit is the amount in the account(s) you are converting from.

Another consideration is "will the increase in taxable income from the withdrawal put you in a higher tax bracket for that year?" Consult a tax professional before making any final decision involving retirement fund rollovers, conversions or early withdrawals.

johnny9434

id roll it over into something else. who knows at this point. ( i dont trust wall st. )

DrBuster

I'd put it into a hard asset or cash until the next market drop, then pick my long term dow holds to dump it into to play. There will be a major play within a year or 2 or 3 to jump on, work the long term trends to your advantage with clean funds definitely.

If you want to pop quarterly or yearly..there's movers and shakers and quiet funky makers here with nice plans working, most of the regular posters here honestly. the terms and expectations of the deliverables in play here are really quite varied.


Good surfers watch the tide, it's respectibly predictable.

DrBuster

An extra 20k though.........

bouncing caddilac eldorado or a bandit TA, definitely.







For the ladies of course.

derryb

I personally would not want my money tied up for 25 years in investments I do not control. The advantage of regular IRAs for many has been the tax deferred status of their contributions, allowing them to pay less taxes now. Today's investment environment is cause to question the long term value of doing this. Will any gains over the next 25 years be greater than any loss of purchasing power?

pursuitofliberty

The question I would have to ask first is how much consumer debt? At what rate??

Then, if you take a distibution, can you offset any of the income tax (not the penalty, that's going to happen no matter what) with any carry-over losses this year?

Is this an active 401K that you are contributing too? Does your employer match, at all??

By knowing all of that, a decision is easier.


For an active account, I would look at what mutual funds are available, make the best choices you can, rebalace or adjust every six months, and keep plugging away. Especially if you get a matching amount of any kind.


For inactive (non-contributing) accounts;

High debt, high rate ... might be worth paying off cashing out the 401K, and wiping out the debt. With the money saved each month, you can then start a PM (or other asset) accumulation plan. Don't be in a hurry. Pay off the debt and start stacking (either PM's, or shares, or whatever). You will have to be deligent "repaying" yourself.

Low rate debt ... I'd be inclined to leave it be or do a roll over (if possible) into a self-directed IRA (whether Roth or otherwise). A Roth would probably be a better choice in many ways, and with a small lump sum (I know 20.K isn't peanuts, but it isn't huge either) the tax bite for this conversion wouldn't be a horrific amount (although the percentage would be high).

Don't be afraid of Mutual Funds, there are some pretty nice ones out there ... you just have to do some due diligence. ETF's require a little more active management IMO, and the DD is still required. Individual stocks can make you, or they can kill you.


For the market portions, 25 years away and I would be about 35%-45% growth and appreciation, 35-45% value and dividend, and 10-25% lower-risk income.


All IMO of course

gsa1fan

Cash it & buy gold.

guitarwes

Thank you all for your responses so far. Most of it is in line with my thinking. And I realize I need to consult my tax guy (and I do), but I always learn from these scenerios when posted.

To fill in a few pertinent answers.....



<< <i>The question I would have to ask first is how much consumer debt? At what rate?? >>



10K. 9%



<< <i>Then, if you take a distibution, can you offset any of the income tax (not the penalty, that's going to happen no matter what) with any carry-over losses this year? >>



This is one of the main reasons I brought this up. I'm about to have a new baby in december (+1 dependent for this year). My wife hasn't had any income this year at all. I make <50k/yr. We have boocoodles of out of pocket medical expenses this year. Lots of mortgage interest. I thought alot of the income tax would be a wash if I cashed out one of the 401k's. I should have done it in May when my gut told me to when silver was $26.



<< <i>Is this an active 401K that you are contributing too? Does your employer match, at all?? >>



One is active. up to 4% employer match. One is inactive with no contributions made in the last 3 years.



<< <i>For inactive (non-contributing) accounts;
High debt, high rate ... might be worth paying off cashing out the 401K, and wiping out the debt. With the money saved each month, you can then start a PM (or other asset) accumulation plan. Don't be in a hurry. Pay off the debt and start stacking (either PM's, or shares, or whatever). You will have to be deligent "repaying" yourself. >>



This is exactly my thinking, especially since we're gonna have alot of deductions this year.

derryb

Getting out (and staying out) of high interest debt should be a priority. You can always borrow again later if need be at today's much lower rates.

cohodk

No investment class over the last 100 years has outperformed equities.

MsMorrisine

but there is a penalty to pay off the debt.


are there no rollover options to consider? roll into a plain jane IRA ?

derryb

<< <i>but there is a penalty to pay off the debt. >>


There's also a penalty to keep it - interest payments. Which is the lesser of two evils?

1jester

<< <i>Cash it & buy gold. >>



I second this. Otherwise you have no control over it at all, and personally I also believe there is a huge risk of the gov't either seizing your dollars or forcing you to buy gov't bonds or treasuries, which are subject to massive inflation (possibly turning them valueless). In other words, if you don't have gold or silver in your own hands, you could lose absolutely everything down the road. This goes for everybody, and anything held in fiat assets.

gsa1fan

<< <i>No investment class over the last 100 years has outperformed equities. >>



equities
Definition
An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation's assets and profits. A person holding such an ownership in the company does not enjoy the highest claim on the company's earnings. Instead, an equity holder's claim is subordinated to creditor's claims, and the equity holder will only enjoy distributions from earnings after these higher priority claims are satisfied. also called equities or equity securities or corporate stock.


I assume these are different than regular stocks?

cohodk

I'll rephrase. The stock market has been the best returning asset class over the last 100 years.

Generally, the time to buy something is when no one else wants it. While this forum is a tiny microcism of society, it surely speaks volumes.

RGJohn

<< <i>Say you'd have about $20,000 after taxes/penalty if you cashed out your 401k right now. Would you buy pm's on the next dip (if there is one) or leave it alone let it ride in the market and see what happens? All of your shares are in long term growth stock mutual funds without any choice of specific stocks. You have some consumer debt which will be paid off in the next couple years. You have a seperate slightly larger retirement fund of the same particulars other than the one you're thinking about cashing out. You have 25 years until you plan to start retiring. >>



The numbers might work for you Wes.
If you have $10K at 9% and you pay it off in 5 years, you will have paid $12,454.80. That's the magic of compound interest. If you pay it off today, you'll pay $10K. That's quite a savings and it is guaranteed. Other options, including PMs come with no such guarantee.
And you still have $10K to invest.
----
Even if you do suceed in paying it off in 2 years ( a questionable proposition for a guy with unemployed wife and new baby (BTW, congrats!))
you will have paid $10964.88. I say questionable as your payments would be $456.87 per month and then there is rent or house payment, food, new baby expenses ( they ain't free), cars, insurance, gasoline in California is over $5 a gallon today ( I know you're in Georgia but high prices spread faster than the flu) and I dunno what else.
------
I did something similar several years ago. The 10% penalty hurt especially as I was very close to the 59 1/2 year 'magic age'. Oh well it had to be done and I have never regretted doing it. I bought much of the land surrounding my home and have peace and quiet (which I esteem highly). I have lovely neighbors but they aren't close enough to hear me snoring at night!
------
I would get rid of that debt. And not acquire anymore. Debt is expensive.
With the remaining cash, you are in a good postition to buy and sell as you already do. Why not 'play' with that remaining $10K and see how long it takes to double it. You're a smart fellow and you've got the motivation. Trust your gut.

Good luck,
John

jmski52

I felt better after getting out of my retirement accounts (all in stocks & bonds), and all into precious metals. I started that transition in 2006 and completed it in 2008. I paid the taxes & penalties and never regretted doing it.

Frankly, I feel more in control than ever - not having to depend on people I didn't really know - their integrity, their expertise, their true investment records - none of that was ever really known anyway. I spent decades letting people I didn't know handle my most important financial assets. Weird, don't you think?

However..........................our situations are different. That matters. It's also 6 more years down the road since 2006. That matters also.

Different asset classes put in a better performance over different time frames, and the results vary depending on the metrics used. It is as important to look around and assess the situation. Then, you take your best shot. Even after you make a decision, you should keep your wits about you and stay engaged because "things change".

I still try to compare the pros & cons for every new dollar that needs a home. I still can't think of a better overall place to park money than physical precious metals. I simply don't trust the system right now, especially as it relates to anything fiat. Baley does. cohodk does. I don't. There's an honest difference of opinion no matter whom you talk to.