401K rollover help

[neguy11]

I just left one of my jobs and I had a small 401K about $500. I could either cash it out and pay taxes and 10% penalty on it and use it to pay down student loans (my higher interest loan is 8%) or I could do a rollover IRA. But honestly for $500 it seems like kind of a hassle to do a rollver IRA. None of my other jobs have a 401K.

What's more beneficial and easiest. I work too much and don't have a lot of time so the easier the better.

[sweeps]

Re: 401K rollover help

Do you have any other retirement savings at another company?

The problem is with $500 you're not going to meet the minimum balance requirement at most companies. You can cash out the 401k and pay down the student loan. But that still brings up the question, are you saving enough for retirement?

[neguy11]

Re: 401K rollover help

No I am 21 and saving nothing for retirement. I have a savings account that I try to add $20 to each paycheck (I get paid every week.) Other than that, all my money goes to bills and some fun stuff.

The penalty for cashing out is only 10% + whatever tax bracket I am in correct? It'll probably be easy to just do that and put it in my savings account.

[sweeps]

Re: 401K rollover help

Yes, taxes + 10% penalty.

[neguy11]

Re: 401K rollover help

Thanks. I hate to cash out but to be honest I wasn't too impressed with the thing. I read that if you are young put the money into growth stuff, so I did and last quarter I lost money on everything.

[vsjhoc]

Re: 401K rollover help

Thanks. I hate to cash out but to be honest I wasn't too impressed with the thing. I read that if you are young put the money into growth stuff, so I did and last quarter I lost money on everything.

Most of us lost also. But you're in "growth stuff" because you have a long investment timeline. You've got at least forty years to go until retirement, so a losing quarter has no real effect in the long run (assuming you're investing consistently from now until then for retirement).

[Ima saver]

Re: 401K rollover help

Couldn't you roll it over into a roth ira at the bank? Then when you get enough built up to open a mutual fund roth ira, you could roll it over again. You are the perfect age to start saving and becoming reall wealthy!

[autoxer]

Re: 401K rollover help

The penalty for cashing out is only 10% + whatever tax bracket I am in correct? It'll probably be easy to just do that and put it in my savings account.

It may be an easy way out, but it isn't recommended.

You should let compounding interest work it's magic. If you earn 10% / year for 40 years, that $500 will turn into $20,000. The earlier you start the better off you will be. If you add $1000 to that fund each year, then you will end up with $422,000 in 40 years. If you cash it out and wait 5 years till you start contributing, then you will have $271,000 in 40 years. It may seem like a small amount now, but it makes a big difference in the long term.

But you have to deal with the fluctuations. If you pull out whenever there is a bad quarter, then you will be buying high and selling low. That won't get you anywhere. You need to leave it in to catch all of the good quarters too.