AboutWillard R. Brumbaugh, LUTCF Expertise I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance.
I have been counselling against most Qualified Plans since 1994.
Experience Ranked in the top 5 in retirement catagories at Askme.com most of its last 2 1/2 years. Organizations I belong to:
National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council
Education/Credentials Life Underwriters Training Council Fellow
Question I have just recently quit my job(to return to school full time) and have a 401k worth approx 12000. Can I do a partial rollover of 5000 into a traditional IRA, and take the rest as a cash out? What are the tax implications...will only the cashed out portion be taxed and penalized? Just need some clarification. I will be using the cash to pay for education expenses, but do not want to lose my savings entirely...this is why I want to do at least a partial rollover. Thanks for your help.
Answer Dear Tammy,
Since it is your intention to use the withdrawals to pay for educational expenses, I would advise you to transfer the entire 401(k) into the IRA. You will have avoided the mandatory 20% withholding and kept more money working for you till you need it.
The money that you will then pull out for educational expenses will be reportable for tax purposes, but there will be no Premature Distribution Penalty. Also, if you have to pay for health insurance, money withdrawn from your IRA for that purpose also will be penalty-free.
If you were to do a $5,000 transfer to an IRA and request the rest in cash, your ex-employer would have to send $1,400 (20%) straight to the IRS. You don't want that.
