[Tommy-G]

Hello off topic'ers
Been a while since I have dropped by. 2 hurricanes and an over abundance of work have kept me quite busy but I know some of you are very knowledgeable with investing and the such.

My wife just switched jobs and her prior employer wont allow keeping her money in their 401k until she becomes eligible for her new plan. We are looking into buying a home between now and June and may need those fund accessible to borrow against, NOT CASH OUT.

My question, what types of options can we roll her funds into that we can access if need be and not get penalized and taxed on for closing out

[kscarrol]

Hmm, I'm pretty sure you either roll the funds into an IRA or cash out and pay the taxes/penalties. I don't think you'll be able to borrow against as retirement accounts are usually protected from creditors so most won't let you use them as collateral when taking out a mortgage/loan. But I'm speaking from memory and rules may have changed.

[Gemini562]

I think Kscarrol is right that rolling into an IRA could work, but borrowing from it isn’t an option. If you need access to the money for a loan, it might be worth checking if her new 401(k) allows rollovers and loans. That could line up well with your home-buying plans, so definitely take a closer look at the options.

[2000cs]

Depending on your hurricane experience, you may be able to take an emergency withdrawal. Talk to a good CPA about that option to be sure you’re not going to get a tax/penalty surprise.

[RickFLM4]

I’d look into the rules about employers being able to force her to move the money out. I thought there were some laws around this if the balance is over a certain amount. Leaving it there until she understands all options and being eligible for her new employer’s plan would be the first choice, if possible.

If they are legally allowed to force her to move it out and she isn’t eligible for her new employer’s plan yet, her only options will be to move it to an account like a an IRA (tax free rollover) or take a withdrawal. She would need to pay tax on the withdrawal plus (unless she qualifies for a hardship) 10%. As kscarrol noted you can’t borrow against an IRA.

Maybe she can roll it into an IRA, park it temporarily and then move it into the new 401k. Honestly, not sure if that’s possible or not. Her best bet is to ask her new employer if they can work that out and if it would be eligible to borrow once she’s in the new plan. She may not be able to borrow against it in her new plan even if you figure out a way to get the money in it.

One caution about 401k loans is if she changes jobs again before the 401k loan is paid off, it can create an unintended early distribution, with penalty (unless you pay it off). My BIL had a 401k loan and changed jobs but couldn’t roll the 401k loan or borrow against the rolled over balance from the new plan. He doesn’t have the funds to repay the loan, so he’s going to have to pay tax + 10% on the remaining loan balance that will be treated as an early distribution. (I suspect he doesn’t have the funds to pay the tax + penalty either so I’ll be hearing about it again in early April…)

[chassis]

IRA rollover yes.

Use the newly rolled over funds as collateral (borrow against them) probably not.

[Tommy-G]

Originally Posted by Gemini562

I think Kscarrol is right that rolling into an IRA could work, but borrowing from it isn’t an option. If you need access to the money for a loan, it might be worth checking if her new 401(k) allows rollovers and loans. That could line up well with your home-buying plans, so definitely take a closer look at the options.

This is what I am finding...but the new employer wont allow her in until a years time

Originally Posted by 2000cs

Depending on your hurricane experience, you may be able to take an emergency withdrawal. Talk to a good CPA about that option to be sure you’re not going to get a tax/penalty surprise.

We got lucky, no damages at all but the house likely needs a roof. I know its older than 6 years

Originally Posted by RickFLM4

I’d look into the rules about employers being able to force her to move the money out. I thought there were some laws around this if the balance is over a certain amount. Leaving it there until she understands all options and being eligible for her new employer’s plan would be the first choice, if possible.

If they are legally allowed to force her to move it out and she isn’t eligible for her new employer’s plan yet, her only options will be to move it to an account like a an IRA (tax free rollover) or take a withdrawal. She would need to pay tax on the withdrawal plus (unless she qualifies for a hardship) 10%. As kscarrol noted you can’t borrow against an IRA.

Maybe she can roll it into an IRA, park it temporarily and then move it into the new 401k. Honestly, not sure if that’s possible or not. Her best bet is to ask her new employer if they can work that out and if it would be eligible to borrow once she’s in the new plan. She may not be able to borrow against it in her new plan even if you figure out a way to get the money in it.

One caution about 401k loans is if she changes jobs again before the 401k loan is paid off, it can create an unintended early distribution, with penalty (unless you pay it off). My BIL had a 401k loan and changed jobs but couldn’t roll the 401k loan or borrow against the rolled over balance from the new plan. He doesn’t have the funds to repay the loan, so he’s going to have to pay tax + 10% on the remaining loan balance that will be treated as an early distribution. (I suspect he doesn’t have the funds to pay the tax + penalty either so I’ll be hearing about it again in early April…)

I hear you loud and clear on that!!!!