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#1: Newbie and found Money-help!!

Posted on 2006-03-02 17:41:33 by Woody

I am a newbie when it comes to investing and finance. I am not
accustomed to investing when I have extra money, but I think it's
time to be wise and I need your help.

I got an end-of-year earning statement from my ex-employer saying that
I have about $8500.00 in my retirement account. I worked for this
company for 8 years and I guess after 5 years of working there you get
a full profit sharing-retirement plan.
Anyway, I don't know what to do with this money.

Should I roll it over into my current retirement or should I cash out
(I know I will have to pay 20 percent for federal taxes and there
"might" be a 10 percent early withdraw fee) and use it to pay off
some of my second mortgage or credit cards?

Regarding the 10 percent early withdraw fee, I was told by the
investment company handling my retirement account that more than likely
I will NOT have to pay this because I am younger than 55. If it makes
any difference, I am single and am employed by the state in which I
live.

Thanks in advance!

Woody

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#2: Re: Newbie and found Money-help!!

Posted on 2006-03-02 18:26:02 by Rich Carreiro

&quot;Woody&quot; &lt;<a href="mailto:mc2work&#64;yahoo.com" target="_blank">mc2work&#64;yahoo.com</a>&gt; writes:

&gt; Should I roll it over into my current retirement or should I cash out
&gt; (I know I will have to pay 20 percent for federal taxes and there
&gt; &quot;might&quot; be a 10 percent early withdraw fee) and use it to pay off
&gt; some of my second mortgage or credit cards?

No, you almost definitely *will* have to pay the 10% penalty.
And don't forget about state income tax on it, either.

And that 20% is just the mandatory withholding. If you're
in, say, the 25% bracket, you'll owe have taxes on 25% of it,
not just 20%.

So figure that you'll likely end up losing over 30% of the
amount to taxes and panelties.

Given all that, I don't think there's much point to using it
towards your 2nd mortgage.

I also doubt using it to pay down credit cards is wise, either.
But what is the interest rate on the cards?

&gt; Regarding the 10 percent early withdraw fee, I was told by the
&gt; investment company handling my retirement account that more than likely
&gt; I will NOT have to pay this because I am younger than 55. If it makes

Either you or they have it backwards. Because you are under 55
you *will* have to pay the 10% early withdrawal penalty.

--
Rich Carreiro <a href="mailto:rlcarr&#64;animato.arlington.ma.us" target="_blank">rlcarr&#64;animato.arlington.ma.us</a>

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#3: Re: Newbie and found Money-help!!

Posted on 2006-03-02 18:39:43 by Elle

&quot;Woody&quot; &lt;<a href="mailto:mc2work&#64;yahoo.com" target="_blank">mc2work&#64;yahoo.com</a>&gt; wrote
&gt; I got an end-of-year earning statement from my ex-employer
&gt; saying that
&gt; I have about $8500.00 in my retirement account.
snip; he's vested
&gt; Should I roll it over into my current retirement or should
&gt; I cash out
&gt; (I know I will have to pay 20 percent for federal taxes
&gt; and there
&gt; &quot;might&quot; be a 10 percent early withdraw fee) and use it to
&gt; pay off
&gt; some of my second mortgage or credit cards?

This money of which you speak is in a tax protected vehicle.
That's a big deal when compounded over the years. It's tax
protected to encourage people to //save for retirement//, so
people do not grow old in poverty. Take that goal seriously.
One must try very hard never, ever to touch money put into a
retirement account such as a 401(k), IRA, or other
pension-type plan. Remember the tax hit and (quite possibly)
10% penalty reduce the value of this account considerably,
again particularly when one compounds the effects over the
coming years.

A lot of people (like 45%!) these days do--foolishly--cash
in their 401(k)s. This helps explain why the savings rate in
the U.S. today is in negative territory for the first time
since the Great Depression. Good lord. This is /very/
serious.

Do not follow the herd. They're going broke and declaring
bankruptcies in record numbers.

Roll over this $8500 into a traditional IRA. This is not
hard to do; you just have to pick an institution (bank,
brokerage, big ol' mutual fund yada company like Vanguard
or Fidelity or Wells Fargo etc.), and they will be happy to
help you roll it over and store it for safekeeping.

Once the money is in a Traditional IRA, you can invest it in
stocks, bonds, mutual funds, whatever as you see fit. Start
another thread if you have questions about how to pick
between these.

Re your credit card debt: How serious is this? This may
require another thread, since it's a different issue, for
the most part. You need a really good reason to use tax
protected retirement savings to pay off credit card debt.
Also, are you able to make your monthly house payments?

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