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bad month

Cashing out the 401k after a layoff can cost a third of it before you spend a dollar.

Withdrawals before 59½ are taxed as income plus an additional 10%. Leaving the money in the plan, or rolling it over, costs nothing.

You asked for the three-option card. It is below, as the slides from the post, then the one move, then the tool the chart points at.

Slide 1 of 7: Cashing out the 401k after a layoff can cost a third of it before you spend a dollar.Slide 2 of 7: Early withdrawals before 59½ carry this additional tax on top of regular income tax.Slide 3 of 7: What happens to the 401(k) after you leave, by choice.Slide 4 of 7: A layoff makes the 401(k) balance look like the emergency fund, and the paperwork makes cashing out the easiest button.Slide 5 of 7: If you leave a job in or after the year you turn 55, the 10% penalty does not apply to that plan's money.Slide 6 of 7: If you truly need money after a layoff, in this order.Slide 7 of 7: Save this before the form arrives.

If you truly need money after a layoff, in this order.

  1. 01
    Unemployment benefits and the emergency fund.That is what they are for.
  2. 02
    Hardship options from lenders, and a cut in the bad-month order.Cheaper than any withdrawal.
  3. 03
    Only then, a withdrawal, and only the amount needed.Knowing the full cost.

The tool this chart points at

A low-fee brokerage

For the IRA, the index fund and the rollover. Broad index funds with expense ratios under 0.1%.

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Sources: IRS Retirement Topics: Tax on Early Distributions.

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