We have a combined income of 50k/year and about 30k in a Blackrock 401k which has weathered the 2008 recession. Now that the market has bounced back, we're worried about things like the European Debt Crisis and our own nations debt - to the point that we're considering pulling out of the market, taking the hit and parking the money in real estate or something else.
Q1. What are the financial ramifications of doing so?
Q2. Is there a way to limit the taxes and penalties?
Answer The penalties for early distribution of your 401(k) are that you will immediately pay ordinary income tax on the withdrawal amount plus a 10 percent penalty. The only way to avoid these are to roll the amount directly into another tax qualified plan, presumably a traditional IRA. Fortunately, your options are virtually infinite with an individually owned IRA; including fixed accounts such as money markets or CDs, or even real estate. About the only vehicle which cannot be held in an IRA is a life insurance policy. If you wish to be in or tied to the market, but with little or no market risk, an equity-indexed or variable annuity with guaranteed return options may be your best bet.
For further information, feel free to visit the ACFA website at www.christianfinancial.vpweb.com.
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Thanks, Rob. I'll look into the IRA / Real Estate suggestion.
Retirement planning, tax qualified retirement plans (401(K), IRAs, etc.), mutual funds, insurance used in retirement planning, estate planning (tax planning, transfer of assets, creditor protection).
Comprehensive financial planner, 14 years; Executive Director, Association of Christian Financial Advisors, the nation's largest nonprofit financial planning network. Financial writer and frequent contributor to journalists and media sources.
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