I was wondering if you could help me out in determining the best course of action I should take. I have recently taken a new job in a different city. With my former employer I had a 401 K and also a retirement fund. I understand that a few options will be available: either a) I take the balance from both programs in a lump sum (taxes and penalty fees will be incurred) or, b) roll it over to my new employer's 401 K program, or c) open an IRA.
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The issue I am facing is that since we are moving to a different city my family and I will be buying a second home, leaving our old house for rent. In this depressed real state market we would rather not sell our first home until the market turns around. For the purchase of the new home I was planning to boost our down payment with the funds from the 401 K and the retirement plan from my former employee. Should I take the lump sum (and therefore incurring in penalty fees and taxes) or is there anyway that, if moving the funds to the new 401 K program (or opening an IRA), I could use all or part of the moneys without being affected by the fees and taxes? -Jose, FL
Jose: Congrats on the new job! In this job market and economy I'd play it safe. Instead of buying a new home, I'd consider renting one. Don't rush into buying a new home until you are sure this position/city is right for you. Once you determine that it is (6-24 months down the road), worry about that next home purchase. If you are under 59 1/2 and take money out of your 401k or IRA you will be hit with a 10% early withdrawal penalty and your distribution will be taxed as ordinary income. Meet with your tax preparer or CPA to discuss tax/home buying strategies.
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Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning
expert on CNBC’s “On the Money”. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at www.MyRetirementSuccess.com.