The Great 401K Expirement

Too bad you'll take all of your 401k as income, PLUS an extra 10% penalty.  That REALLY sucks....

Pondering that very move myself.

With a real inflation rate approaching 10% and the hard reality of tax increases in the near future that 10% penalty has much less sting than it once did.

On top of this, my company's 401k does not provide the flexibility to trade my balance as I'd wish to. In the main the choices are stock and bond funds, both very poor investments in today's environment.

And finally, although it borders on 'tin hat' thinking, I have to believe that with the national debt as insurmountable as it is, the $10 trillion in private retirement accounts will increasingly entice to our 'public servants' to confiscate it for our own protection.

Pax

I'm also thinking about doing the same thing. One thing to remember: What you pull out will be counted as income and can push your income bracket to the next tax level (i.e. %27 to %31). This would make your tax hit even larger. I'm thinking of pulling enough out to not step over to that next tax bracket. Then Jan 1st, i'll pull out the next amount. 

We discuss these options often at our house.  My wife's plan at work gives us access to every mutual fund in the US via Fidelity's "Mutual Fund Window," so I am able to add metals and non $US currency protection via funds like Merk Hard Currency Fund, Permanent Portfolio, First Eagle Gold Fund, Tocqueville Gold Fund, and a short stocks fund or two.  If it weren't for those options she would be out of her plan ASAP.

The coins are valued at market going in and out.

Remember that if you are 55 years old or older and separated from the employer attached to the 401K you may cash out without penalty.  You would still have to pay the taxes.

In that situation I decided to take half of my 401K in cash (to buy PMs) and rolled the remainder into an IRA (now mostly in closed end Canadian PM funds).  That kept me from too many tax bracket jumps.

Last year, I considered taking IRA money out and converting to gold, but I didn't.  By 2009, I had missed a 8 years of the bull market and thought the 40% hit was too high.  I can buy gold stocks and physical ETFs from within the plan.  Some people have very limited choices and might come to a different conclusion.

So, I trade within the IRA and will stay long gold until the time comes to cash out.  Timing is a bitch.

My strategy so far has been to barbell physical metals with quality corporate bonds.  It's done pretty well so far. The bonds would be trashed if the system dies.

"The Great 401k expirement"  It will expire and it will hurt, I can promise you that.  I quit a high paying job last year, in part to get out of my 401k lock-in in addition to jumping on some opportunities elsewhere for a while.  I didn't close out the 401k, but I did convert it to an IRA and bought some inflation hedges focused on miners and physical gold and silver.  SLV and GLD are _NOT_ things to hold in a retirement plan... they do not have the physical to back claims upon it.  Its simple fact.

I have every intention of cashing out the IRA on or before January 2nd 2011 (first business day without a hangover of the year).  I'm debating it because I know my federal taxes will be greatly reduced next year in comparison with the current year.  Its a tough decision and I'm not sure exactly when the IRA will be closed, but it will be closed soon.  I have no intention of holding FRNs longer than needed to pay taxes and expenditures that I must have.

I encourage everyone to get out of the dollar for wealth savings as soon as you can.  And there is absolutely no reason why you should have a dollar denominated retirement plan.  Even if the stock market soars during inflation, it will still lag the depreciating value of the currency.  This pattern has repeated throughout the last 100 years for every country that suffered bouts of inflation and hyperinflation.  The US will be likely be different of course, its likely to be far more dramatic and painful for the savers.

Still funding the 401K. Buying PSLV, PHYS and CEF with the pretax self directed PCRA Schwab account. 2 years to go for retirement!

Got my physical already.

...there are only a few ways that anyone under 59 1/2 may access their 401k. One is by leaving your employment. Those of us fortunate enough to have jobs aren't likely to do that anytime soon. The second is to take out a loan against it. IIRC, you're limited to a maximum of $50,000 or a percentage of your total balance if you have under a certain amount, and it has to be paid back at market rates over three years, or five years if being used for a residence or RE. The next two ways are hardship. One is for medical bills not covered by your employers health plan, and must be fully documented. The other is foreclosure of your primary residence, which must also be fully documented.

401ks are essentially money traps. I stopped contributing to mine the first time that I heard Theresa Ghillarducci testify in front of George Miller's (D-CA) subcommittee on labor and pensions in October 2008. Since then the Senate has had hearings on switching 401k's to GRA's, and there have been two NPRM sessions at both Treasury and Labor on how to implement this change. They WILL be confiscated eventually as the government gets more desperate for revenue. Just ask the .gov retirees who are having their pension plans raided by Treasury right now to fund ongoing .gov operations until the debt ceiling is raised.

If you're over 59 1/2. or if your employer allows you to switch to an IRA, I would recommend either cashing out in the former, or switching in the latter. IRA's will probably come under the gun eventually too, but they at least are much more liquid than a 401k. If I were able to do so, I would.