So I am sitting out in the yard with my mother-in-law and she is telling me about how she is most likely going to get laid off soon and shes trying to get a game plan in place. One of the first questions she asks me is “what do I do with my 401k?”. This is a pretty common question asked by many people today because of our economy’s downturn. Usually most people only have to think about what investments they will make in their 401k because leaving the company is the last thing on their mind. The first thing I said to her is you want to rollover your 401k. The last thing you want to do is cash it out.
I explained to her that essentially if you touch the money yourself, meaning your current employer sends you a check for the amount of your 401k, you will be taxes heavily. It will be an instant 20% withholding that your company is obligated to take before you even see the check. You have 60 days from that point to redeposit it into a new account, but if you forget and do not meet that 60 day time-line you are going to be penalized again. So the best thing to do is to roll it over. Sometimes people are not sure where to get 401k rollover info and so they sit idle, not knowing what to do. I also informed her that if she was not sure what she wanted to do with her funds, she should ask her current employer about leaving her investments where they are until she has found a new home for them.
We never know what life is going to throw our way. Investments go up, they go down, but the goal is to not panic. Making rash decisions can cost you a lot in the long run. Being informed and knowing the proper steps to take can make a big difference.
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