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I am currently looking at changing jobs from a large corporation to a smallish company. I currently have only about $4k in a Roth 401(k) though my current employer. The smaller company does not offer a retirement package through them, so I am trying to figure out my options.

I am pretty young (23) and inexperienced in this area. Should I look at moving the money into another retirement plan right away, or take a cash distribution, even with it's 30% hit from taxes and penalties?

Another wrinkle; I am getting married in 3 months, so a cash distribution would greatly help pay down some credit card debt that I have prepare for the wedding, to avoid any interest charges (I know, I know, I shouldn't be carrying a balance anyway :-) ) It's not a huge amount in the account currently, so I would also like advice on what to do after the company switch and wedding!

Thanks for the advice!

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    Congrats on the marriage, but I wouldn't touch my retirement for paying down that debt. You can do that is lots of other ways. – MrChrister Aug 18 '10 at 20:30
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Do not take the cash!

You might be able to leave the money with the large company. Ask the HR people at the company. If you are satisfied with their work, no sense leaving if you don't have to. I have coworkers that have 401K all over from all the buyouts the company went through.

If you don't want to leave it behind, do a rollover into your own account with a low cost carrier. (Vanguard, Fidelity and Charles Schwab are popular) Whoever you choose for your own account can help you rollover the funds without penalty. (Schwab helped me over the phone, it was pretty simple)

More about rolling over a Roth 401K

  • I'm thinking I'll roll it over into another carrier; I think I'm down a few hundred in "investment experience" so far this year. – MattGWagner Aug 19 '10 at 1:30
  • @MattGWagner Keep plugging away, consistently and frequently. Your wins will smooth out your losses when you average it over time. Dollar cost averaging makes it all better. – MrChrister Aug 19 '10 at 4:23
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Since its such a small amount, they may require you to move it. A common cutoff is $5k, but it varies from plan to plan. I would roll it over into an IRA. The problem with withdrawing it is that opportunity to save is gone. Especially for IRAs, which have a low maximum contribution, its hard to make it up in the future.

  • I started researching it a bit, I think the minimum in my case is $1k. – MattGWagner Aug 19 '10 at 1:29
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I would suggest you rollover your Roth 401k to a Roth IRA. Then pay off your debt before investing anymore money. In the long run you will be better off to have all your debt paid off. But I would not withdraw from the Roth 401k to pay down your debt. The penality is too steep.

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I think it would be worth it for you to look into something called a "Self-directed IRA" before you make any decisions. Sometimes the costs can be a little higher, but you may find the flexibility worth it. Basically, instead of being limited to a small set of mutual funds from which to choose, having the money in a self-directed IRA would let you branch out into real estate, gold, or other vehicles that aren't part of the usual 401K landscape.

And count me as another vote for not taking the cash. MrChrister is right, there are plenty of other ways to pay that off without the penalty.

  • -1 - The transfer to a Traditional IRA is enough. A Self-Directed IRA is no appropriate for this investor's experience or his account balance. – JoeTaxpayer Jan 7 '13 at 1:00

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