401k

[mellowtigger]

I have never wanted a 401k stock market "retirement savings" account.  Everywhere I worked during the last 20 years, though, has given me one even when I deliberately fail to sign the paperwork for it.  Why are companies even allowed to do that instead of pay people higher salary if they simply opt out of it?  I just now looked at the account I got from my last job (ended a few weeks ago).

HOLY MOLEY!

That's more money than I got in a whole year's salary, pre-tax.  I could immediately pay off my house and still have lots of money left over for house repairs, assuming I got the full amount by cashing out now.  Or save it all and wait out this pandemic a whole lot longer.

I might as well cash out.  The dashboard says I've already lost $5K in value this year due to stock market drops, and I expect it to get worse this year.  I just need to look up how much I'll pay in taxes and "early withdrawal" fees.

Anyone here familiar with this process and the penalties involved?  I've already looked over the Fidelity website, but it doesn't get into specifics.  I've created a new link today to my actual bank.  Once that's confirmed, apparently I need to call Fidelity to begin the closure process, so money can be delivered to the bank.

Edit 2022 July 28: I did it.  I withdrew the full amount, with the automatic deposit expected to complete on Tuesday next week.  I'll post details of the numbers and why it makes sense to do it, after all of the money movement has completed.

Comments

[darkoshi]

If you don't like the funds that the 401k offers due to the stock market risk (or other reasons), they usually also provide one very low risk, very low interest option like a money market fund. Even if you have to roll over to a different 401k plan due to changing employers, it may save you money in the long run to keep it in a 401k, in a money market fund, rather than cashing out and paying the 10% penalty. Especially if you are nearing 59 and a half in age, when the penalty no longer applies (I think).

I participate in my company's 401k because of the company match. If the company matches 100% of the first 3% of your salary that you contribute, even if you put it all in the low interest money market fund, it is like getting 100% interest on your contribution, at least for the first year.

If you don't want to be in a 401k plan at your next job, check the documentation they give you. Rather than simply not signing up, you may need to explicitly opt out.

Besides the risk, one reason I've been averse to the various mutual funds offered by my 401k is not knowing or having any control over which company's stocks are in those funds. I don't want to financially support companies that are doing bad things.

This last year I've put a portion of my 401k balance into my 401k's "brokerageLink" option, which gives more choices for the kind of companies to invest in. But I've come to realize (or at least suspect) that companies don't get much if any direct financial benefit anyway, from me investing in a fund which includes their stock. I'm not buying the stocks from that company; I'm indirectly buying them from some other investor who is selling their stocks in that company. It's the other investor getting the financial benefit, not the company whose stocks it is. The company only gets money from selling stock during the initial public offering, if I understand it right. So now I wish I had put the money in one of the default 401k funds instead of the extra hassle of the brokerageLink. I sort of dread checking how that money is doing, actually.

[mtbc]

Nice thing about more choice via brokerage-ish kinds of option is that one can often find an ETF that fits one's ethics better. Sometimes I've ended up going for sharia options (!), I don't much care about shrimp farms but at least it also cuts out payday lenders and suchlike. One word of warning: some ETFs are really not diversified, good to check the portfolio composition first.