velouria

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i have a moderate chunk of change stashed in my 401k. i'm starting school this fall - do you think it would be best to cash it and take the hefty penalties but have the extra cash, or let it grow untouched? (i assume you're allowed to do that?? it's with my current employer, and obviously i'll be leaving by fall.)

thanks for any help!
 

edmadison

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Originally posted by velouria
i have a moderate chunk of change stashed in my 401k. i'm starting school this fall - do you think it would be best to cash it and take the hefty penalties but have the extra cash, or let it grow untouched? (i assume you're allowed to do that?? it's with my current employer, and obviously i'll be leaving by fall.)

thanks for any help!

In my slightly-better-than-average opinion, I think you would be insane to cash out your 401K for tuition. The value of the tax deferral is huge and student loan interest rates are incredibly low.

You will probably want to roll your 401K into a self-directed IRA. This will give you more flexibility in investment choise. It also makes financial sense to convert your 401K to a Roth IRA. This will let you get tax free income later at the expense of paying the interest at conversion. If you do the conversion when you have no other income you will minimize the tax impact. Talk to a financial/tax advisor for more details.

Ed
 
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