WWYD? Updated!

[oswin]

Personally, I would roll into an IRA. Wouldn't you have to pay a penalty if you took a distribution?

[Poppy]

Yeah, I think it's a 10% penalty plus you'll owe income taxes on it. I'd roll into an IRA (don't let that overwhelm you, it's easy to create an IRA account and just throw it into a target date fund).

[monsterz]

Do not take the cash distribution, penalties and taxes will come back to bite you at tax time. Roll it over into an IRA.

[raangoli]

I'd roll it over. I wouldn't want to pay the penalty and the taxes; plus you said you're not contributing the most to retirement and this shouldn't be taken away from it.

[LoveTrains]

IRA!!!

Of course everyone on MM is going to say IRA. First rule of MM is never ever ever take money out of your retirement accounts.

[mcsangel2]

Aug 28, 2014 12:24:01 GMT -5 LoveTrains said:

IRA!!!

Of course everyone on MM is going to say IRA. First rule of MM is never ever ever take money out of your retirement accounts.

I thought the first rule of MM was never talk about MM Fight Club.

[WOT?*]

I'd say take it out and pay your credit cards so you're not paying interest. But that's only to be contrary (so not everyone is agreeing with roll it over) but not actually what I would do.

Not only would you be paying penalty and taxes, you'll be losing the future growth.

[oswin]

Aug 28, 2014 12:33:15 GMT -5 mcsangel2 said:

Aug 28, 2014 12:24:01 GMT -5 LoveTrains said:

IRA!!!

Of course everyone on MM is going to say IRA. First rule of MM is never ever ever take money out of your retirement accounts.

I thought the first rule of MM was never talk about MM Fight Club.

Shhh, don't talk about it! 

[Nonny]

Aug 28, 2014 15:42:40 GMT -5 @evelynrichards said:

Aug 28, 2014 13:14:29 GMT -5 superduper said:

As someone who took a cash distribution and then got nailed with taxes and fees, DON'T DO IT!!!

I just updated -- looks like I already paid taxes. Does the first rule of MM still hold true?

Retirement money is for retirement.

Roll it into the IRA.

[LoveTrains]

IRA. Is it a Roth? Why did you pay taxes on the money??

[oswin]

If you've already paid taxes on it, then can you roll it into a Roth IRA? Otherwise that money will be taxed twice, right? I may be confused.

[cosmos]

Aug 28, 2014 15:42:40 GMT -5 @evelynrichards said:

Aug 28, 2014 13:14:29 GMT -5 superduper said:

As someone who took a cash distribution and then got nailed with taxes and fees, DON'T DO IT!!!

I just updated -- looks like I already paid taxes. Does the first rule of MM still hold true?

Yes. You will still pay 10% penalty.

Roll it into a Roth IRA.

[Poppy]

Ugh, this might be complicated. You're sure you're dealing with after-tax contributions? I thought that was relatively rare, especially for someone behind on retirement...

If so, is this what happened? You attempted to roll over a 401(k) to another 401(k) and then they rejected the after-tax portion of the rollover and are giving you the option to roll it into an IRA? Another question - do you have any other non-Roth IRAs (traditional, SEP, etc.)?

[Poppy]

And you're sure it wasn't classified as Roth 401(k)?

After-tax-but-not-Roth contributions are a PITA because the IRS hasn't given clear rules. I think you can probably roll to a traditional IRA and then do a conversion to a Roth, which I would want to do b/c I would rather not keep after tax money in a traditional IRA (for a number of reasons, don't want to overwhelm you but I can elaborate if you want). Do you hire someone to do your taxes? That will help. You may also call the IRA custodian after the rollover for guidance. They may want/make you withhold 20% of the rollover for taxes, which would be a problem for you because you can't produce that cash with other funds. For now though, do the IRA rollover at least and then maybe you can deal with a conversion later. You need to be careful to report the rolled over amount as your IRA basis on Form 8606 when you file taxes.

www.marketwatch.com/story/rolling-after-tax-401k-money-into-a-roth-ira-2013-12-27
fairmark.com/retirement/roth-accounts/roth-conversions/isolating-basis-for-roth-conversion/