Solving the Early 401(k) Problem

Several readers and two of our children are asking the same question at about the same time:

If I take an early 401(k) distribution because of a change in where I work and pay taxes on the money, how’s the best way to spend or invest it?

Today, we play out a few scenarios – and  see which ones make the most sense.
After we consider the Tuesday market action, see where the charts have us going, and mull the future of life once upon a time

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11 thoughts on “Solving the Early 401(k) Problem”

  1. Good article today! I appreciate your thoughts for those of us who can’t/won’t do the constant monitoring and short turnarounds that you do. Many of us would rather have longer term plays, and hands off except for perhaps a weekly or monthly monitoring. Life gets busy when you’re retired.

    I have a good friend who will be 62 in a couple of years. I took early SS and am very glad for doing so. She thinks otherwise, but who am I to say. I just think that those who wait too long will get paid in useless dollars or no dollars at all, and I’d rather spend mine while I’m young enough to do so in fun ways. At least I’ll get the memories(and hopefully keep them.

    Just FYI, the icon on the address bar used to be yellow. Now it’s black and gets lost among the other 100 open tabs. I found the yellow icon to be very helpful. I’m not sure how others feel.

  2. You know I respect your opinion George, but there are two things in this mornings column that I vehemently disagree with you on.

    1. There is absolutely, positively no media bias against Trump. Just truth. Just the facts man. Even legitimate Fox hosts have had it with Hannity and friends and their blatant disregard for the truth and unparalleled sucking up to this egomaniac. The bias is 100% with the “For Trumpers”. I hear the same things coming out of his mouth that everyone else does….and much of it it isn’t even slightly coherent. He is not a very smart guy. I am embarrassed for him and by him.

    When there are dozens media companies worldwide that call our president out and only one that supports him…Like a drug addict in Denial …an intervention is needed to help cure and nurture the addicted. Fox is addicted to a very dangerous, life threatening drug.

    2. Big cities are not dead. They are thriving more than ever. Medium size cities…Yes..they are dying. The Midwestern and southern service towns like Memphis, St. Louis, Louisville, Little Rock, Oklahoma City, Tulsa, Jackson, Birmingham, Wichita, Ames, etc. are on their last leg. They don’t provide high paying jobs, and have missed out on opportunities that the big cities now own….Anyone that struggles in these aforementioned medium size cities is better off taking George’s survival advice and should move away from the clutter and settle in a rural area. You will be happier and less stressed.

    The truly big cities…like the Bay Area, L.A, New York, Dallas, etc. are like a major league, all star studded sports franchise. We can recruit the best and brightest minds..who in turn make the highest salaries and financial packages…And…that help support those around them who can earn a great living supporting the robust nature created by the best of the best. The growth in big cities is contagious…and will continue to be. It’s a lot more stressful, and the out of pocket costs are higher… but are relative to the pocket filling opportunities available. In the end…making money has a way of easing many woes.

  3. George:
    Great column lots to think about.
    1) whats up with the DOW vs the S&P and NASDAQ? they appear to be going in different directions. I keep a 2/5/9 128 day chart on the individual indexes and the Brain Amp(thank you!) and the Dow looks like it is going down now verses the other two. (And today they swap out GE for Walgreen’s as of 6/26.
    2) I solved the Car and Medical by having A2 be a ASE certified mechanic. Alabama passed laws that require various shops to have certified individuals on site. Shops now need at least 1 certified mechanic. He is his shop’s.
    We can only flip three cars a year w/o a dealer licence but we can do all the off road stuff like dune buggy carts we want. Buy a few for $100 each from various yards, about $300 in parts and such to restore and rebuild, then by October they are ready to go for about $1200-1500 each (you know what happens in October.
    The medical is solved by a2 (Anna2) entering Nursing School next semester (Yes!). Anna1 wanted a daughter to have someone to pick her up out of bed or the tub when she is old. Now she will be there to take care of both of us.
    3) I can agree with buying an economy car IF you can pay cash and IF it will last 250K-300K miles, and if you are a careful driver who will not wreak it. If you live in an area where someone else is likely to wreak it for you it is still not a good deal to chase gas mileage. Trading to get mileage will not save anything, best to drive what you have until the wheels fall off.
    I am driving a Buick Le Saber with 220K miles still running fine due to my and A2’s attention. Right now it costs me nothing but gas and minimal insurance. It is about like your Lexus on the comfort scale. It gets 19-21 around town but I only drive 8 miles each way to work. (That’s where to save money as you pointed out in “How to live on $10K a Year.” Worth re-reading every year.) On the highway home on weekends or every other weekend, it gets 29 mpg in cruise at 69-70 (set so I can stay in the right lane and let everyone go around without me having to hit the brakes and take it out of cruise). My fear is that going forward the next hit from “Cash for Clunkers” is that the used cars available will be laden with electronics (electric Power steering, Power brakes, transmission shift, CPU and a Screen on the Dash instead of switches) that will not make it the 250-300 K-miles that mechanical parts will go, and will cost more than the car is worth when they fail at about 120 K-miles. Remember Cell Phone “Black-Eye?” That and tiny over-stressed turbo engines. So one thing I am looking to stockpile is a few cars with naturally aspirated engines, 4 or 5 speed auto trans, and less electronics everywhere (and small PU trucks too). Best to pay the rock bottom on the most reliable and cheapest to operate, fix, and insure, simple car or truck, and let the gas mileage fall where it may.

  4. Dear Mr. Ure,

    Sorry to hear about South Seattle. Illinois may have a telling solution to corresponding ‘hood home neighborhoods in South Chicago. Raze the stakes and build a Presidential Palace.

    I’ll include a couple of publicly available links that relate to the upcoming 2019 Illinois State budget. It would seem state taxpayers are being given pride of ownership for a $199 million tab towards infrastructure projects ramping up to a future Obama Presidential Center site. Sounds like a wrap. Enjoy.

  5. If you withdraw from a 401k & you are under age 59.5, I believe there is a 15% penalty in addition to taxes.

    My belief is don’t take a distribution until you retire or when the IRS forces you to at 70.5, otherwise, you are spending your retirement because you do not want to be saying “Would you like fries with that” at 75.

  6. Poker is a game of skill. It is the only casino game you can consistently win at over time, especially if you concentrate on playing with people who have less skill than you. All you have to beat is the house rake. I never play no limit Texas Hold ’em because it attracts the best players. I learned my lesson the hard way. Play limit. If available, my favorite is $3-6, because your competition is generally not that skilled.

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