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Want to prevent 401K loss

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Christine88
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Want to prevent 401K loss  Reply with quote  

Hello all

I have about $139,000 in my 401k and I want to transfer it to a plan where I won't lose anything but can keep contributing 10% with 4% company match. I'm afraid my employer is either going to go belly up or lay me off in the near future. If this happens I plan on cashing out, and yes I am willing to pay the penalties, but take what is left and purchase a modest home so I will have a place to live that is paid for with no monthly note. A place I can call mine that no one can take away from me. I'm afraid the stock market is going to crash about the time I need that cash so I'm willing to put the money in a place where it's protected. I can't simply draw it out and place it in the bank. Can anyone suggest a really safe investment fund so I don't lose anything in the event of a market crash. I don't care if the gains are real low just want preserve what I already have.
Post Sun Jun 09, 2013 10:34 pm
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oldguy
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quote:
I can't simply draw it out and place it in the bank.


Leave it in the 401k account and convert to cash - or a CD if you like.

quote:
If this happens I plan on cashing out, and yes I am willing to pay the penalties, but take what is left and purchase a modest home so I will have a place to live that is paid for with no monthly note.


You might want to rethink this - the $139,000 of added income will put yu in a high tax bracket, both Federal & State, plus you'll pay the $14,000 penalty. You'll probably get to keep only about $75,000 to $80,000 after taxes - ie, it won't be much of a house.

But are you sure that you'd prefer a paid-for house rather than the money? If you are out of work and have no money, you can't buy food, you can't buy gas for your job search - it can become an emergency in just a few weeks.

Conversely, if you keep your $139,000 in the bank and you have a $100,000 mortgage (About $500/m) you can live for a long time. You can make $500/m payment s for years from that $139,000, plus you can eat, drive, etc - ie, you can live for several years w/o a job on $139,000.
Post Sun Jun 09, 2013 11:24 pm
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coaster
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Your 401(k) investments are not in the care of your employer, they are with a plan custodian that your employer has contracted with to manage the plan investments, so even if your employer would go out of business tomorrow, your investments will still be there.* You may lose the employer's matching contribution for any non-vested term there may be mandated by your plan, but you won't lose your own contributions. The entire amount is, of course, subject to market price ups and downs, so if you're concerned you may need the money in the near future and you don't want it to be at risk of market price swings, there should be a cash or cash-equivalent option in your plan you can transfer to.

*(Naturally, if all of your investment is in your employer's stock, then your investment will have a value of zero; and that's one reason why it's recommended to not have all of your investment in one company.)

In the event you don't want to keep the funds with the employer's plan, you may be able to transfer some or all out of the plan (with the exception of non-vested employer matches) to an outside retirement plan, such as a rollover/traditional IRA with a major investment company such as Fidelity. They will have a cash-equivalent or CD-equivalent option for you to invest your funds in when they aren't at risk of market pricing, and they will also not be under the control of your employer's plan administrator.

If you don't need the money sooner than 10 years from now it will be a mistake to put it in cash; I'm about 99% sure of that, and if it was my money I wouldn't do it.

In fact, if you don't need the money any sooner than 10 years from now, a market crash will be your opportunity to buy more investments on the cheap, and if it was my money, that's exactly what I would do.

Example, if you had bought a world-class Blue Chip company like United Technologies in early 2009 after the market had crashed you could have bought it for under $40 a share, and now, only four years later, it's over $90 a share.

Oh, yes, market crashes are wonderful things if you don't panic and sell. Very Happy

~Tim~


Last edited by coaster on Mon Jun 10, 2013 5:42 am; edited 2 times in total
Post Mon Jun 10, 2013 4:22 am
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coaster
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PS: There is *no* place where your money is protected. If you take it all out in cash and put it under your mattress and leave it there I can guarantee you with that same 99% certainty that in 10 years from now it will be worth much less in terms of what it can buy. And the net result of loss from inflation is exactly the same net result of loss from market price.

~Tim~
Post Mon Jun 10, 2013 4:34 am
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Christine88
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quote:
Originally posted by oldguy
quote:
I can't simply draw it out and place it in the bank.


Leave it in the 401k account and convert to cash - or a CD if you like.

quote:
If this happens I plan on cashing out, and yes I am willing to pay the penalties, but take what is left and purchase a modest home so I will have a place to live that is paid for with no monthly note.


You might want to rethink this - the $139,000 of added income will put yu in a high tax bracket, both Federal & State, plus you'll pay the $14,000 penalty. You'll probably get to keep only about $75,000 to $80,000 after taxes - ie, it won't be much of a house.

But are you sure that you'd prefer a paid-for house rather than the money? If you are out of work and have no money, you can't buy food, you can't buy gas for your job search - it can become an emergency in just a few weeks.

Conversely, if you keep your $139,000 in the bank and you have a $100,000 mortgage (About $500/m) you can live for a long time. You can make $500/m payment s for years from that $139,000, plus you can eat, drive, etc - ie, you can live for several years w/o a job on $139,000.


No I don't want to rethink it. I want to move it somewhere so it's not vulnerable to the stock market and buy a house. If I lose my job I will draw unemployment.
Post Mon Jun 10, 2013 10:38 am
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Christine88
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quote:
Originally posted by coaster
Your 401(k) investments are not in the care of your employer, they are with a plan custodian that your employer has contracted with to manage the plan investments, so even if your employer would go out of business tomorrow, your investments will still be there.* You may lose the employer's matching contribution for any non-vested term there may be mandated by your plan, but you won't lose your own contributions. The entire amount is, of course, subject to market price ups and downs, so if you're concerned you may need the money in the near future and you don't want it to be at risk of market price swings, there should be a cash or cash-equivalent option in your plan you can transfer to.

*(Naturally, if all of your investment is in your employer's stock, then your investment will have a value of zero; and that's one reason why it's recommended to not have all of your investment in one company.)

In the event you don't want to keep the funds with the employer's plan, you may be able to transfer some or all out of the plan (with the exception of non-vested employer matches) to an outside retirement plan, such as a rollover/traditional IRA with a major investment company such as Fidelity. They will have a cash-equivalent or CD-equivalent option for you to invest your funds in when they aren't at risk of market pricing, and they will also not be under the control of your employer's plan administrator.

If you don't need the money sooner than 10 years from now it will be a mistake to put it in cash; I'm about 99% sure of that, and if it was my money I wouldn't do it.

In fact, if you don't need the money any sooner than 10 years from now, a market crash will be your opportunity to buy more investments on the cheap, and if it was my money, that's exactly what I would do.

Example, if you had bought a world-class Blue Chip company like United Technologies in early 2009 after the market had crashed you could have bought it for under $40 a share, and now, only four years later, it's over $90 a share.

Oh, yes, market crashes are wonderful things if you don't panic and sell. Very Happy


My money is with fidelity. I have no company stock and yes I will probably need a lot sooner than 10 years.
Post Mon Jun 10, 2013 10:47 am
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Christine88
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quote:
Originally posted by Christine88
quote:
Originally posted by oldguy
quote:
I can't simply draw it out and place it in the bank.


Leave it in the 401k account and convert to cash - or a CD if you like.

quote:
If this happens I plan on cashing out, and yes I am willing to pay the penalties, but take what is left and purchase a modest home so I will have a place to live that is paid for with no monthly note.


You might want to rethink this - the $139,000 of added income will put yu in a high tax bracket, both Federal & State, plus you'll pay the $14,000 penalty. You'll probably get to keep only about $75,000 to $80,000 after taxes - ie, it won't be much of a house.

But are you sure that you'd prefer a paid-for house rather than the money? If you are out of work and have no money, you can't buy food, you can't buy gas for your job search - it can become an emergency in just a few weeks.

Conversely, if you keep your $139,000 in the bank and you have a $100,000 mortgage (About $500/m) you can live for a long time. You can make $500/m payment s for years from that $139,000, plus you can eat, drive, etc - ie, you can live for several years w/o a job on $139,000.


No I don't want to rethink it. I want to move it somewhere so it's not vulnerable to the stock market and buy a house. If I lose my job I will draw unemployment.


Oh and I'm only 25 so I can't draw on that money.
Post Mon Jun 10, 2013 10:57 am
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Christine88
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quote:
Originally posted by coaster
PS: There is *no* place where your money is protected. If you take it all out in cash and put it under your mattress and leave it there I can guarantee you with that same 99% certainty that in 10 years from now it will be worth much less in terms of what it can buy. And the net result of loss from inflation is exactly the same net result of loss from market price.


I'm thinking in the very short term though.
Post Mon Jun 10, 2013 11:49 am
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Anton Martin
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Keep It in 401k  Reply with quote  

If you want to keep your money safe, then why don't you keep your money where it is right now in your 401(k) or may be rollover to IRA.
Post Mon Jun 10, 2013 12:15 pm
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coaster
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If you're only 25 and you already have $139K in a retirement fund I'm totally astonished. That is an amazing achievement. I congratulate you on that. To blow that off because of your fears is equally amazing and astonishing, but in the opposite direction. At 25 you can survive almost anything. To have the goals you have at age 25, especially after accomplishing what you have so far, is completely stupid. There, I'm sorry, but I had to say it, because it's the truth. Sad

If you do absolutely nothing with the money already there; if you leave it alone and do not touch it until you're 65 years old; and even if you never add another red cent ... historical experience tells us that it will grow to be something over $900,000.

~Tim~
Post Mon Jun 10, 2013 1:00 pm
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oldguy
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I second Tim's comments - you're smart enough to build $139k at age 25 - so you can do better than this. Very Happy

quote:
so it's not vulnerable to the stock market and buy a house. If I lose my job I will draw unemployment.


Unemployment? If we have a US Economic/Government collapse of the size that you foresee, there will be no unemployment - a failed gov't is a failed gov't, no exceptions.

quote:
Oh and I'm only 25 so I can't draw on that money.


Obviously you know better than that. Very Happy
Post Mon Jun 10, 2013 1:30 pm
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Christine88
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quote:
Originally posted by coaster
If you're only 25 and you already have $139K in a retirement fund I'm totally astonished. That is an amazing achievement. I congratulate you on that. To blow that off because of your fears is equally amazing and astonishing, but in the opposite direction. At 25 you can survive almost anything. To have the goals you have at age 25, especially after accomplishing what you have so far, is completely stupid. There, I'm sorry, but I had to say it, because it's the truth. Sad

If you do absolutely nothing with the money already there; if you leave it alone and do not touch it until you're 65 years old; and even if you never add another red cent ... historical experience tells us that it will grow to be something over $900,000.


Actually it's not that big a deal. I lived at home after college and no bills so I invested the max amount of my pay into a 401k. I also make pretty good money so that helped.
Post Mon Jun 10, 2013 3:52 pm
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Christine88
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quote:
Originally posted by coaster
If you're only 25 and you already have $139K in a retirement fund I'm totally astonished. That is an amazing achievement. I congratulate you on that. To blow that off because of your fears is equally amazing and astonishing, but in the opposite direction. At 25 you can survive almost anything. To have the goals you have at age 25, especially after accomplishing what you have so far, is completely stupid. There, I'm sorry, but I had to say it, because it's the truth. Sad

If you do absolutely nothing with the money already there; if you leave it alone and do not touch it until you're 65 years old; and even if you never add another red cent ... historical experience tells us that it will grow to be something over $900,000.


I don't think paying cash for a home is stupid at all. Especially now while the prices are down. I just want a place that no one can throw me out of. The advice given here is sound advice no doubt but its just what I'm looking for. I simply don't want my 139k to dwindle in the next few months because I'm about to be unemployed.
Post Mon Jun 10, 2013 4:05 pm
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oldguy
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quote:
I don't think paying cash for a home is stupid at all.


Well, maybe - but it can be costly. You may want to put your money to a higher and better use.

1. Say that you find a $100,000 house and use your $100k to buy it. The loan would have been $477/m. Instead you invest that $477/m into an 11%/yr index for 30 yrs - that's $1.260,000.

2. Or - you buy the house with zero down payment and use your $477/m to make the house payments. And you place your $100k cash into an 11%/yr fund for 30 yrs. That is $2,290,000.

Ie, an extra million. At the end of 30 yrs, with both scenarios, you have a paid-for house (worth maybe $250,000) and either $1.3M of $2.3M (using the same 11%/yr investment fund). I do this with all of my rental houses, been doing it since 1975

Here's a site where you can check out a few 30-year blocks of time.
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

Your potential is awesome - to become wealthy it takes a good income stream plus 'time'. You are 25 - you have about 30 years of wealth-building time, then at 55 you must lower your risk level gradually as you transition into your wealth-preservation years.
Post Mon Jun 10, 2013 4:34 pm
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braje
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My 401(k) is with Fidelity and available to me is a Stable Asset fund. It is basically the same as a savings account. Gains are practically nil but so are the potential losses. I also suggest you do the math before you pull it out of the retirement account.
Also there is a lot more to home ownership the the price of the house.
Post Mon Jun 10, 2013 8:45 pm
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