401k rollover or CD...

Willgly · 12-31-2007, 02:23 PM

I just recently switched jobs and I have $12,000 with Fidelity in the 401k from my prvious job.

Is it better to roll it over into my current 401k or cash it out and then dump all of it into a CD that can give me back as much as a 5% APY?

I am 31, getting married in Sept., looking to buy a house/condo within 3 years, my current/new job pays me $65k and puts an additional 8% into my 401k every year on top of my own contributions.

Julie Rains · 12-31-2007, 02:44 PM

I am all for the rollover; check with your tax person, Fidelity and/or the IRS but I think you'll have to pay taxes and a penalty if you don't do the rollover.

Will · 12-31-2007, 02:57 PM

I think Julie's right.

According to this article from About.com, there are quite a few negatives to cashing out the 401k,

"Your plan administrator will automatically take 20% out for taxes, as required by law"
"if you're under age 59 1/2, you'll have to pay a 10% penalty"
If you are in a fairly high tax bracket: "In effect, you've walked away with only half of your original investment and have seriously shortchanged your retirement."

summrs1 · 12-31-2007, 05:44 PM

Everybody is in a different situation, but it is generally better to roll-over the 401k than to cash out and put the money in a CD.

An alternative to rolling the money into your new employer's 401k would be to roll-over into an IRA. The IRA will give you more investment options than a 401k. You should be able to roll the money from the 401k directly to an IRA.

The Honest Dollar · 12-31-2007, 07:47 PM

I agree that cashing out the 401(k) is a bad idea. You may be able to get 5% on CDs, but first you're losing 20% to taxes and 10% to an early withdrawal penalty. Anyway, if you are invested in mostly equities (stock and stock funds), as most advisors suggest for people in their 30s, your return should be much better in a rollover (either to a 401(k) or to an IRA) than it would be in a CD; the historic return of the stock market is 10% annually.

Also, unless there's a reason why you can't, you should definitely consider rolling over into an IRA as summrs1 suggested. You may be able to find cheaper investments (investments with lower expenses and fees) with an IRA brokerage firm than you would in your current 401(k). Reasons why you can't may include company policy which requires you to hold all investment accounts with the company.

jasoos007 · 01-01-2008, 10:31 AM

I would highly recommend the rollover overt the CD..even if the market is not going to perform that well ...probably you can wait until February 08 to see how market is ...how about taking out the money and later on put that in a mutual fun or ETF ...but please keep in mind 20% on taxes and 10% to an early withdrawal penalty.

rolltimer · 01-01-2008, 05:19 PM

You can rollover the 401K into an IRA at a big fund family such as Vanguard. They offer numerous no load options for investing. Start by rolling it all into a money market fund. Take your time. Review some of their fund offerings particularly the index funds--ones that mimic returns of the total stock market, the S&P 500, the total bond market or a blend of the stock/bond markets. Then, slowly start moving into the funds you've chosen. You may also consider a retirement targeted fund where you pick your retirement year (or something close to the year you expect to retire) and they manage the allocation of your funds between stocks, bonds, and money markets, moving the funds into more conservation investments as your targeted retirement date draws near.

Mark P. Cussen · 01-15-2008, 11:33 AM

I agree with the rollover advocates. One further suggestion I would make is to convert your 401(k) to a Roth IRA, and then invest it in a good long-term growth fund, such as Davis Selected American Shares or the Davis New York Venture fund. It's averaged over 12% per year since 1969. At that rate of growth, even if you had only $9,000 left after taxes to put in your Roth, you would have approximately $425,000 tax-free at age 65.

Mark P. Cussen, CFP, CMFC

rstlne · 01-16-2008, 08:49 AM

I would suggest rolling it over to a Rollover IRA. If you're nervous about the stock market (and there are actually good reasons now to worry), then you could put the Rollover IRA into a CD or money market fund. That would at least avoid the tax penalty that you would incur by withdrawing from the 401K.

Basenjimom · 01-16-2008, 04:21 PM

I was just in a similiar situation, and was advised by my financial advisor to ROLL IT OVER INTO AN IRA, and actually, most finance experts will tell you the same. NEVER cash it out....NEVER EVER....!

12-31-2007, 02:23 PM	#1
Willgly Junior Member Join Date: Dec 2007 Posts: 3 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	401k rollover or CD... I just recently switched jobs and I have $12,000 with Fidelity in the 401k from my prvious job. Is it better to roll it over into my current 401k or cash it out and then dump all of it into a CD that can give me back as much as a 5% APY? I am 31, getting married in Sept., looking to buy a house/condo within 3 years, my current/new job pays me $65k and puts an additional 8% into my 401k every year on top of my own contributions.

12-31-2007, 02:57 PM	#3
Will Administrator Join Date: Jan 2007 Posts: 381 Thanks: 2 Thanked 3 Times in 3 Posts Reputation: (23)	I think Julie's right. According to this article from About.com, there are quite a few negatives to cashing out the 401k, "Your plan administrator will automatically take 20% out for taxes, as required by law" "if you're under age 59 1/2, you'll have to pay a 10% penalty" If you are in a fairly high tax bracket: "In effect, you've walked away with only half of your original investment and have seriously shortchanged your retirement."

01-01-2008, 05:19 PM	#7
rolltimer Senior Member Join Date: Dec 2007 Location: Alabama Posts: 137 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (24)	Take the Rollover; Nix the CD You can rollover the 401K into an IRA at a big fund family such as Vanguard. They offer numerous no load options for investing. Start by rolling it all into a money market fund. Take your time. Review some of their fund offerings particularly the index funds--ones that mimic returns of the total stock market, the S&P 500, the total bond market or a blend of the stock/bond markets. Then, slowly start moving into the funds you've chosen. You may also consider a retirement targeted fund where you pick your retirement year (or something close to the year you expect to retire) and they manage the allocation of your funds between stocks, bonds, and money markets, moving the funds into more conservation investments as your targeted retirement date draws near.

01-15-2008, 11:33 AM	#8
Mark P. Cussen Wise Bread Blogger Join Date: Nov 2007 Posts: 12 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (11)	Rollover I agree with the rollover advocates. One further suggestion I would make is to convert your 401(k) to a Roth IRA, and then invest it in a good long-term growth fund, such as Davis Selected American Shares or the Davis New York Venture fund. It's averaged over 12% per year since 1969. At that rate of growth, even if you had only $9,000 left after taxes to put in your Roth, you would have approximately $425,000 tax-free at age 65. Mark P. Cussen, CFP, CMFC

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12-31-2007, 02:44 PM	#2
Julie Rains Wise Bread Blogger Join Date: May 2007 Location: North Carolina Posts: 399 Thanks: 1 Thanked 0 Times in 0 Posts Reputation: (189)	I am all for the rollover; check with your tax person, Fidelity and/or the IRS but I think you'll have to pay taxes and a penalty if you don't do the rollover.

12-31-2007, 05:44 PM	#4
summrs1 Junior Member Join Date: Dec 2007 Posts: 11 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	Everybody is in a different situation, but it is generally better to roll-over the 401k than to cash out and put the money in a CD. An alternative to rolling the money into your new employer's 401k would be to roll-over into an IRA. The IRA will give you more investment options than a 401k. You should be able to roll the money from the 401k directly to an IRA.

12-31-2007, 07:47 PM	#5
The Honest Dollar Member Join Date: Dec 2007 Location: New York Posts: 90 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (64)	I agree that cashing out the 401(k) is a bad idea. You may be able to get 5% on CDs, but first you're losing 20% to taxes and 10% to an early withdrawal penalty. Anyway, if you are invested in mostly equities (stock and stock funds), as most advisors suggest for people in their 30s, your return should be much better in a rollover (either to a 401(k) or to an IRA) than it would be in a CD; the historic return of the stock market is 10% annually. Also, unless there's a reason why you can't, you should definitely consider rolling over into an IRA as summrs1 suggested. You may be able to find cheaper investments (investments with lower expenses and fees) with an IRA brokerage firm than you would in your current 401(k). Reasons why you can't may include company policy which requires you to hold all investment accounts with the company.

01-01-2008, 10:31 AM	#6
jasoos007 Junior Member Join Date: Dec 2007 Posts: 8 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	I would highly recommend the rollover overt the CD..even if the market is not going to perform that well ...probably you can wait until February 08 to see how market is ...how about taking out the money and later on put that in a mutual fun or ETF ...but please keep in mind 20% on taxes and 10% to an early withdrawal penalty.

01-16-2008, 08:49 AM	#9
rstlne Senior Member Join Date: Jan 2008 Location: New Jersey Posts: 369 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (115)	I would suggest rolling it over to a Rollover IRA. If you're nervous about the stock market (and there are actually good reasons now to worry), then you could put the Rollover IRA into a CD or money market fund. That would at least avoid the tax penalty that you would incur by withdrawing from the 401K.

01-16-2008, 04:21 PM	#10
Basenjimom Junior Member Join Date: Jan 2008 Posts: 25 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	I was just in a similiar situation, and was advised by my financial advisor to ROLL IT OVER INTO AN IRA, and actually, most finance experts will tell you the same. NEVER cash it out....NEVER EVER....!