Sometimes You Have to Cash Out
Go read this article by Anya Kamenetz to understand the source of my ire.
I already know not to cash out my 401k. I but I had to do it anyway because of the stupid way the plan was set up not to transfer shares from one institution to another (which I would have done with my S&P and International funds, i.e. 75% of my account). Therefore I HAD to cash out if I wanted control of my own money. I was not going to open a rollover IRA with an institution that I hated with a crappy website and overall lousy service. (They only send you your full account number once so you never see it again if you lose that sheet of paper. Thus making Quicken set up impossible.)
I don’t know what she could have told a person like me. I was stuck with my money in a crappy institution or else cash it out and move it rather than leave it to languish in a 401k plan I disliked.
So what exactly was the point of her advice? All I got out of it was “do not blow your savings.”
When I was in my 20’s and stuck in Silicon Valley with no job, no money and no life, I cashed out my 401k and used it to move back to the east coast as an economic refugee of the dot-com bust. I have no regrets on that whatsoever. That money was my ticket to a new life in a new line of work. While I might have more money in my retirement accounts had I kept that $4k in the bank, I now make double or triple what I would be making back in San Francisco. If I hadn’t moved, I probably would have sank deep into credit card debt while working as a barista. That would have been a bigger hole to climb out of than trying to build my savings back up.
(Side note: SAVE YOUR MONEY. It could save your whole life.)
Generic advice like this article really annoys me. It’s good for folks who have no clue, but it lacks depth. It’s positively shallow and a message you can get from anywhere. I’m not slamming Ms. Kamenetz herself. I’ve read her other articles and find her advice useful, but I guess I’m out of her target demographic anyway.
You can’t write to a financial expert every time you need to sneeze or experience a hiccup, but I really wish they would review various realistic scenarios for people. In this age of infinitely customizable products, why is their product (advice) positively bland?
Sarah wrote:
Perhaps I am being dense, but I don’t totally understand what you did here with the 401k cashout/rollover. It sounds like what you did was get a check from the first 401k plan and moved it into another investment vehicle (the Berkshire shares). Why didn’t you take the check from the first 401k plan and apply it to an IRA with the company of your own choosing? To my understanding that would be the same as a penalty-free rollover, and you wouldn’t have to had use whatever crappy options your previous employer offered. Can you clarify?
Posted on 01-Aug-08 at 5:39 pm | Permalink
Sarah wrote:
Also, even though it was contrary to standard advice, it sounds like using the earlier 401k to fund a big step upward in your career was a smart move. So good for you.
Posted on 01-Aug-08 at 5:40 pm | Permalink
mapgirl wrote:
Hi Sarah,
If you read the link to my previous post on how I actually did the account transfer, I DID move the old 401k funds from Crappy Plan Administrator A to Another Company B in a traditional IRA account I already had. I had two reps from each company talk directly to one another.
Posted on 02-Aug-08 at 2:37 pm | Permalink
Sarah wrote:
Thanks for answering! I did read the prior post, that’s why I was confused about your ire over the “cash out” part. I think when the general PF advice columnists warn against a “cash out” of a 401k plan, they are talking about people who take that check from 401k and don’t put it another tax-deferred savings vehicle (thus triggering a tax event for that year, whee). It sounds like what you did was not a cash-out — it was the situation where Company A sends the check to you for you to turn over to Company B, rather than making the transfer directly for you. (Which is more common than people realize and totally within the rules for rollovers, as I understand it.)
Posted on 02-Aug-08 at 5:23 pm | Permalink
mapgirl wrote:
To me, ‘cashing out’ means selling all your investments. It doesn’t matter if you take it out of a pre-tax account and move it to a post-tax account. Cashing out is leaving the stock or bond market for holding cash. And I had to make cash to move from one account to another. Selling off something is cashing out. Perhaps I look at this the wrong way.
Posted on 04-Aug-08 at 5:07 pm | Permalink
Sarah wrote:
Yeah, it’s totally semantics. It seems to me that most advisors, when talking about cashing out a 401k, mean that the taxes have to be paid on it that year. (Rather than during the retirement years.) So if you moved it from the 401k to a trad IRA, you’re all good on the taxes, no hit for this year, right?
Posted on 05-Aug-08 at 3:07 pm | Permalink