So I’ve got this 401k account with (what is to me, anyway) a fairly substantial chunk of change in it. In an ideal world, I’d just keep putting money in it, but what with it being a 401k and me not working for the employer anymore, I can’t do that. (Which just seems wrong somehow. Anyway.) I can leave it there, because I have more than the minimum amount required to leave it there. Or I can roll it over into an IRA, or I can cash it out, but that last is really only an option if there’s some kind of enormous doom.
I’m getting a pretty good interest rate on the account, right now; this year it’s about 18%, and even when the stock market went foomp when the tech bubble burst, I managed to not quite lose money. So I’m thinking about just leaving it there, and starting a new IRA so I can put more money aside. Except the thing I’m not actually sure about, and I can’t seem to make the net cough up is, am I right in thinking that interest continues to compound on that account? I’m not adding anything in to it, but the invested balance will keep making more money, right?
It’s all very hard to know what to do!
miles to Lothlorien: 398
Yes, assuming the things you are invested in continue to make money, so will you. Cashing out is a *BAD* idea, because my understanding is the government takes twenty percent right off the top, and then charges a 10% penalty at tax time, and then adds what you got to you yearly income, which can put you in a higher tax bracket, costing you yet MORE money. Usually not worth it. Roths seem to be a good way to go as your intial investments are withdrawable without penalty at any time, but I am not really sure what the implications are as far as the taxable status when you move the money. Alot of investment moves have a limited period in which to move the funds, and if you actually lay hands on it all the penalties and taxes apply. My suggestion would be to talk to an investment planner (most banks have one, or you could go to a brokerage house like merrill lynch).
Good luck!!
I rolled my 401k over into an IRA, but that’s because I trusted AltaVista about as far as I could throw them (which seems to have been wise, since they screwed up the transfer and left money behind, which necessitated me dealing with them AGAIN when they decided to shut down their 401k and I suddenly had to do reams of paperwork to move $600 to my IRA or suck down the taxes).