Laid Off, Need Money! Old 401k convert to IRA for withdrawal???
Hi Terry,
Love you and all of your helpful advice! I’m 48, I’ve been maxing out my 401k contributions since I started working out of college and rolling them into my current employer every time I’ve switched jobs over the years. I also opened an IRA a few years ago with our family financial advisor and rolled money into that. It has ~$350K in it, so that’s not too bad! I have $90K in my last job’s 401k that’s doing really well, so I’m just leaving it there and keeping an eye on it.
Recently, I found an old 401k that I must have forgotten about over the years that has ~$15K in it. I lost my job as a senior IT manager in 2022 and I’m having a really hard time finding another job. I was making $200K. The tech industry is really competitive lately with all the layoffs. I don’t want to deplete my savings, so can I convert the old 401k to an IRA and withdraw the money? I read IRAs only have a 10% penalty for early withdrawal and since I need the money, $15K is a pretty good chunk that will help a lot (minus the 10%) to break even from some big expenses I had to cover the last few months like moving and putting my stuff in storage.
I got a job at the local Target, but it’s only $15/hr and not covering my expenses. I moved in with my elderly parents in June (they need a lot of help), so I’m not paying high Chicago rent anymore too. Help! What else should I do? I just keep watching my beautiful savings account slowly deplete. I had ~$80K in it when I got laid off and now it has $40K. I’m not spending more than I need to, I don’t travel, I don’t go out, I feel trapped here….. Tick tock tick tock…….
Thank you so much,
Terry Says
I understand. I have a friend who is in exactly that same position. If you need to take the money out, you will pay a 10% penalty (since you’re under age 59-1/2) AND ordinary income taxes on the money you withdraw, whether it’s an IRA or a 40l(k). So you’d have to set that money aside if you just cash in the 40l(k).
You’re doing all the right things regarding the rest of your life. So why not wait until next year, when your income will be lower (and the taxes as well), and make the decision then. Have some faith in yourself and keep on searching for a job in the meantime. Please write back in 6 months and let me know where you stand.
