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401k and Money Market advice
Monday, Dec 15, 2008
Question: My mom is 62 year old woman with no husband and has 30K in her 401(k). She needs to start using it to help her afford to live. Is it smart to put it in a money market and if she did, how much penalties would she have to pay on 30K?
Answer: Since your mother is 62 years old, she is free to withdraw funds from her 401(k) account without the 10% penalty normally associated with early withdrawals. The minimum age at which a 401(k) account holder can begin taking out money without penalty is 59.5 years. However, since the money she paid into the 401(k) was never taxed, she would probably be required to pay 20% in tax for withdrawing the funds from her account. However, she may be able to deduct the amount paid in taxes from tax liability for that year, or even receive a refund for the taxes paid, depending on her overall tax situation. I would encourage your mother to consult with a certified public accountant or a professional financial planner to determine exactly what she will be required to pay in taxes and how much she may be eligible to have refunded to her. To learn more about the various withdrawal options, and
for much more information about 401(k) accounts, you can visit RollOverAid.com.
Once your mother has withdrawn the funds from her 401(k) account, the next question will be what she should do with them. Given the volatility in the US financial markets, money market funds are not considered as safe as they once were. To read more about this change, you can read a recent article published in the NY Times titled, "Money Market Funds Enter a World of Risks". Money market funds are still a very low-risk option for most individuals. However, if your mother wishes to avoid all risk, she should consider using a “money market deposit account” which is a different from a “money market fund.” Money market deposit accounts, like savings accounts, are FDIC insured, so the risk of your mother losing any money in this type of account is nil. To read more about
Once your mother has withdrawn the funds from her 401(k) account, the next question will be what she should do with them. Given the volatility in the US financial markets, money market funds are not considered as safe as they once were. To read more about this change, you can read a recent article published in the NY Times titled, "Money Market Funds Enter a World of Risks". Money market funds are still a very low-risk option for most individuals. However, if your mother wishes to avoid all risk, she should consider using a “money market deposit account” which is a different from a “money market fund.” Money market deposit accounts, like savings accounts, are FDIC insured, so the risk of your mother losing any money in this type of account is nil. To read more about
FDIC insurance and the various types of accounts which are insured, I encourage you to visit the FDIC website.
When you go into a bank to open a new account, especially if the account is anything but a traditional savings or checking account, I would encourage you to ask the banker if the account is FDIC insured, so you know what your potential risk is.
Again, I would encourage your mother to consult with a CPA or financial planner to discuss her finances and her future plans; this will help her determine what amount of risk is acceptable so she can maximize the return on her money while she is not using it to pay for living expenses. I wish you and your mother the best of luck for the future, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
When you go into a bank to open a new account, especially if the account is anything but a traditional savings or checking account, I would encourage you to ask the banker if the account is FDIC insured, so you know what your potential risk is.
Again, I would encourage your mother to consult with a CPA or financial planner to discuss her finances and her future plans; this will help her determine what amount of risk is acceptable so she can maximize the return on her money while she is not using it to pay for living expenses. I wish you and your mother the best of luck for the future, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Sarah on Monday 15th December 2008 06:37
Thank You Bill! Your good Karma will make your future bright!