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Deferred Comp Withdrawal

By Terry Savage on October 30, 2019 | Financial Planning / Retirement

Terry, I am retired and draw a pension of $2600 a month plus $226 in Social Security. I just bought a car for $16,000 and I took out a loan from my credit union at 2.75%. Other than my car note and mortgage, I have no debt. I am gravely concerned about a recession wiping out my 401(k) leaving me unable to make my car payment. Should I withdraw money from my deferred comp to pay off my car before I lose it all?

Terry Says

Wait, wait. I think you may have some things confused. First, I’m glad you have a pension; that won’t go away no matter what happens to the stock market. Second, do you have “deferred comp” or do you have a 40l(k), or both?? That makes a lot of difference. If you still have your old 40l(k) from work, contact Fidelity or Vanguard and ask THEM to do a DIRECT ROLLOVER of that 40l(k) plan to a rollover IRA. Then you can leave most of it in a money market mutual fund, where you won’t lose any money. You might want to leave a portion in a “balanced fund” or an “equity-income” fund where you might get some growth to offset future inflation.
If you do this rollover correctly, the money will continue to grow — safely — tax-deferred, until you withdraw a bit at a time, at which point you will pay taxes on the withdrawals. Keep in mind that you must start withdrawing at age 70-1/2. Fidelity or Vanguard will do those calculations for you.

I’m guessing you don’t have deferred comp, but there are different tax rules for that.

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