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Don't Do It! (Cashing Out 401ks)
The Market Ticker ^ | 11-08-2009 | Karl Denninger

Posted on 11/09/2009 7:34:12 AM PST by blam

Don't Do It! (Cashing Out 401ks)

Monday, November 9. 2009
Posted by Karl Denninger in Consumer at 08:44

Grrrrr....

As the last of his severance pay dwindled away in March, Brad Cleghorn of northwest suburban Marengo cashed out his 401(k) plan in order to pay his mortgage and feed his family.

Cleghorn is not alone. A Hewitt Associates study shows that 46 percent of workers with 401(k) plans who lost or switched jobs cashed the plans in, a trend that could lead to serious problems when younger generations of people working today reach retirement.

That's not the real problem folks.

Let me make this crystal clear:

Your 401k or IRA has near-absolute protection in a personal bankruptcy. As a qualified retirement plan it cannot be seized by creditors if you file a Chapter 7 or Chapter 13.

The absolutely worst thing you can do is to cash out those plans. This is not just about sabotaging retirement, although that's serious.

This is the "human face" on the games our government has played with bailing out banks and other big financial institutions. You, "Joe Six Pack", hasn't been helped at all, and bill collectors and others will even "suggest" that you cash in retirement funds so you can pay them!

Don't do it!

Go see a qualified CPA and/or Bankruptcy Attorney. Yes, they'll charge you $100 or so to spend a half-hour going over your circumstances and personal situation.

[snip]

(Excerpt) Read more at market-ticker.denninger.net ...


TOPICS: News/Current Events
KEYWORDS: 401k; bankrupcy; bhoeconomy; consumer; economy; money; personalfinance; unemployment
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To: AppyPappy

Not in my area. It’s not like the old days of “I just don’t want THAT job”, people are fighting for part time grocery store work in my area.


21 posted on 11/09/2009 8:26:44 AM PST by autumnraine (You can't fix stupid, but you can vote it out!)
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To: cripplecreek
"Today she’s unemployed and living in a house that’s paid off."

June 2010 ALL our real estate will be paid in full except for that biannual exercise in armed extortion called property taxes.

Never will I have a real estate loan again, either cash or unsecured will be used if I buy more!

22 posted on 11/09/2009 8:28:22 AM PST by Mad Dawgg (If you're going to deny my 1st Amendment rights then I must proceed to the next one...)
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To: texgal

I don’t know, but rather than become homeless, we took out our 401K and took the tax hit.

Sometimes you just have to do what you have to do.

I hate to tell some Freepers, but the job market is terrifying in some places. Where’s over 17% nationwide, in some places it’s over 20%. And what jobs there are, are part time and minimum wage. Not enough to keep a house going.


23 posted on 11/09/2009 8:28:33 AM PST by autumnraine (You can't fix stupid, but you can vote it out!)
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To: nicola_tesla

Some states like Texas and Florida, do not make you sell your ‘homestead’ to pay off debts. No matter how big and expensive a house you have in Florida, even if it is paid off, you can keep it in a bankruptcy.


24 posted on 11/09/2009 8:28:46 AM PST by sportutegrl (If liberals could do math, they would be conservatives.)
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To: blam
Your 401k or IRA has near-absolute protection in a personal bankruptcy.

However, it has almost no protection in a divorce settlement. If you are facing divorce and you need funds (such as to purchase a place to live), it might be justifiable to cash a 401K in. If done before the settlement, the spouse will share in the costs and penalties associated with an early withdrawl

25 posted on 11/09/2009 8:30:55 AM PST by kidd (Obama: The triumph of hope over evidence)
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To: bestintxas

My mother cashed hers out nbot because of a fear of government getting it but because she saw how fast it was eroding in the stock market.

The “experts” said the same thing they’re saying now. If she had listened, she might have a quarter of what she had when she cashed out.


26 posted on 11/09/2009 8:31:02 AM PST by cripplecreek (Seniors, the new shovel ready project under socialized medicine.)
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To: Earthdweller

A lot of people think they won’t have anything IN the 401K if the stock market crashes.


27 posted on 11/09/2009 8:32:36 AM PST by autumnraine (You can't fix stupid, but you can vote it out!)
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To: blam

My son in law filed for bankruptcy a few years back and the court took 1/2 of his 401K. This was probably before the new bankruptcy law passed by congress so I don’t know if the same applies today.


28 posted on 11/09/2009 8:32:57 AM PST by Larry381 ("in the final instance civilization is always saved by a platoon of soldiers" Oswald Spengler)
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To: sportutegrl

Yeah, this is why OJ got to live in a mansion while owing the Browns and Goldman’s millions.


29 posted on 11/09/2009 8:34:28 AM PST by autumnraine (You can't fix stupid, but you can vote it out!)
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To: Larry381
My son in law filed for bankruptcy a few years back and the court took 1/2 of his 401K. This was probably before the new bankruptcy law passed by congress so I don’t know if the same applies today.

I doubt it. IRA's, 401k's, pension benefits, social security, etc., have been exempt from creditors both in and out of bankruptcy since I was in law school 25 years ago.

30 posted on 11/09/2009 8:39:05 AM PST by Labyrinthos
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To: blam
Your 401k or IRA has near-absolute protection in a personal bankruptcy.

Notice how the author has to qualify his statement with the word near. Near-absolute must mean not absolute. If it's not absolute, it's not absolute.

31 posted on 11/09/2009 8:43:18 AM PST by CodeJockey (If you can read this thank a teacher, if you can read it in English thank a Soldier.)
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To: cripplecreek

I would not cash mine out to stay away from stock market, although it does appear weaker for the foreseeable future than historical.

Instead, I view the liberal mindset that anything in 401ks and IRas is the governement’s money as no taxes have been paid. They would like to seize a portion and issue “Social Security credits” to those who have 401ks or IRAs.

If you remove your money from them, they are that much further from goverment’s seizure.


32 posted on 11/09/2009 8:44:39 AM PST by bestintxas
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To: blam
There are other temptations to cash out - mine, for example, down some 45% and only now beginning to recover (it's at approximately the level it was six years ago). You watch that happen and you watch the fiscal idiocy that has quadrupled federal debt inside a year and you have to be tempted to cash out while you still have anything at all, especially since you won't be hit with capital gains taxes if you haven't any capital gains to report.

The thing is, there really isn't any safe haven although some are safer than others. The bond market isn't that great at the moment and they're still a promise to pay off by people who may or may not be able to. Money market and CD's, heck, even savings accounts, all depend on the financial institutions involved remaining intact. Real estate? Watch the taxes climb. And any of this that is "insured" by a government that will simply run the printing presses to pay you off in worthless money is potentially disastrous. If certain people are sitting on bags of gold like trolls in a Grimm Brothers story at least they don't wake up in the morning to find half of it missing.

33 posted on 11/09/2009 8:48:20 AM PST by Billthedrill
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To: Labyrinthos

The exception is if someone does a fraudulent transfer or preference to their account in too obvious bankruptcy planning -— e.g., write a credit card check, then deposit it in your IRA.


34 posted on 11/09/2009 8:53:54 AM PST by Jewbacca (The residents of Iroquois territory may not determine whether Jews may live in Jerusalem.)
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To: blam

I’ve contemplated cashing out to bury gold coins in the back yard.


35 posted on 11/09/2009 8:59:34 AM PST by Rio (Don't make me come over there....)
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To: bestintxas

“I am 59 1/2 in 10 short months and believe me I will cash out as soon as it happens.”

I’m with you. I have 7 months to go, hoping the rules won’t change. I’m a little concerned about the rules changing because when companies stop matching contributions on these things, there is no reason to stay in. I have some concern on stable value funds not being marked to market. Too many withdrawls may be a problem for them.


36 posted on 11/09/2009 9:05:18 AM PST by Phillipian
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To: Jewbacca

Of course. I assumed that the person was honest.


37 posted on 11/09/2009 9:12:12 AM PST by Labyrinthos
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To: autumnraine
people are fighting for part time grocery store work in my area

There's a silver lining in every cloud. I've noticed that when I go to Fast Food joints, retail stores, etc... that more and more of the clerks have been a little older and able to speak English. And, have been interested in providing good service.

Is it non-PC for me to notice things like that? :-)

38 posted on 11/09/2009 9:12:19 AM PST by wbill
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To: Jewbacca

Of course. I assumed that the person was honest.


39 posted on 11/09/2009 9:12:20 AM PST by Labyrinthos
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To: wbill

I’ve noticed that too. People who actually appreciate a paycheck are keeping the jobs. That is a positive.


40 posted on 11/09/2009 9:15:48 AM PST by autumnraine (You can't fix stupid, but you can vote it out!)
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