Hi Sean hope all is well with you and your family, I was going to direct message you this question but then thought others might benefit from from your advice. So, my fiance has a 401k from previous employer I've been telling her to cash it in for a long time she's stuck on the penalties and taxes. We are moving the account to E Trade so it will be easier to our accounts together once we get married when I looked at her statement couldn't understand a single thing in regards to what she's really invested in? I thought I heard you say people holding 401k's should move them into cash can you please explain why so it's not just coming from me and help us both understand the benefit and current situation as to why it's the right thing to do? I would really appreciate it, she has seen how we can fairly quickly recoup those penalties but is still having some fear so I trust you can explain it far better than me. Thank you for everything you have done for me personally and for all subscribers you have a tremendous blessing over the years look forward to hearing back from you and be able to make the best decision.
If she's below official retirement age (to avoid penalties), she probably doesn't want to "cash it in" unless she desperately needs the cash. Otherwise, she would probably want to consider transferring it over to an IRA Rollover account at a broker like Ameritrade.com or Schwab.com, etc. The broker can handle doing the transfer, to make sure it's done properly. And then, if she wants to move that money into a money market fund WITHIN the account, that's what's meant by "going to cash".
So, ideally, what you don't want to do is take the money outside of the 401k or IRA Rollover account until she's past the age of penalty. Y'all have a convesation with your broker and they can tell you anything they'll need to transfer her 401k over.
The reason for the move into cash is because the stock market, overall, is grossly overvalued. It's at price-to-earnings levels that have been seen at previous market crashes. Also, the amount of money that's "trading on margin" in the market (borrowed money), is at higher levels than the previous two crashes. So tons of speculation and that can't last forever. But in the end, only y'all can decide what's right for y'all.
Thank you so much for clarifying "into cash" that was where I was unsure and didn't want to assume, we have 60 days to get it done to what works best for her and probably go with Ameritrade I have my brokerage account with E-Trade but have heard Ameritrade is better so I can transfer to them in that timeframe as well it will just take some getting used to because I've been with E Trade for so long. I did read your article " when to know your 401k could take a steep dive" and it was very helpful just wasn't sure about how to address it correctly. Thanks so much Sean for your quick response and all your help over the years God bless you and your family!
I did exactly what you are describing and found out that the industry buzzwords are: "IRA Rollover". Since brokerage firms want your business, they make it pretty peasy:
- Open an IRA account (online if you want to, I did)
- Either you contact the 401k admin or the brokerage firm can do it on your behalf if allowed by the 401k admin
- A transfer is made, no taxes or penalties are taken out for the transfer if it goes into the Rollover IRA Account
- The transfer is made by by whatever means the 401k account allows (I've had to have a check mailed to me on 1 account, on another it was mailed directly to the brokerage firm). Maybe they can wire it if you want? I was never in a hurry, so a check worked for me.
- Once they arrive the funds are available for trading or keeping in the IRA Rollover cash account for your use. Once you determine which firm you want to move the money to, an internet search with the firm name & rollover ira comes up with their process. Since you mentioned tdameritrade, here's what came up in the search: https://www.tdameritrade.com/retirement-planning/rollover-ira.page Best Regards, Jon
Thank you so much for your help I have spoken with Pacific Life where she has the 401k account and they were very nice and the paperwork is on the way. Heard good things about TD Ameritrade ( I have E Trade right now) but she's old school and there is a TD Ameritrade office less than 5 miles from her place in Providence RI so we'll just make a appointment and bring the check and get it done 👍.. My other question is can you pick what they invest in with a IRA rollover? Wounding if it works much like my brokerage account but you can't take cash out without a penalty or is it different? Thanks for reaching out I really appreciate it.
Thank you, no it will be a new account with no other funds in it and we will definitely take your advice and let the new broker handle this transfer. I am so thankful we get to communicate with you and each other like this can't begin to tell you how much I've learned and have had questions answered by reading other posts, I know you have personally given up a lot to keep things setup like this and the time, detail, and effort you put into each weekly video and monthly newsletter I'm very grateful.