Rollovers to IRA???

[BankruptinNJ]

Hi. I recently lost my job and am not eligible for unemployment -- therefore I will have no income. I do have a small bit of money in the company's pension and 401(K) plans with Merrill Lynch.

I supposed I'll have to rollover these funds into an IRA. I know NOTHING about this. This is for a very small amount -- just over $7,000. I know that it is pathetic but it was a very low-paying job.

Does anyone have any suggestions? Should I go to my bank or a brokerage?

Will I have a problem because I currently don't have a source of income and don't know if I'll be able to make future contributions? I figure that I will find a job someday somewhere.

I keep hearing about fees at the brokerages and people talking about different funds and I don't know what they mean! I keep reading about mutual funds etc. but I just don't grasp the meaning, just like I never did grasp algebra!

If anyone understands these things, please explain it in very simple language. I'm not stupid, I just think creatively instead of logically.

[justbroke]

In most 401(k) plans, you can keep it in the plan if the balance is over $5K. You don't need to continue to make contributions. You will probably be tempted to cash it out and take the penalty on it. If you do roll it over, only do a direct rollover or you will probably just keep the cash.

One problem with indirect rollovers, is that the old plan will give it to you as a distribution and take 10%-25% in taxes in advance. In order to roll it into the new plan, you'd have to make up the difference (10%-25%) for it to be a complete rollover. This is where people end up just spending it.

I can't tell you whether it's in your best interest to do a direct rollover or just have it distributed and then spend it. That is a financial decision that will need to take some though. Know that you will be taxed on the "early" distribution and pay a 10% penalty on top of that. So, if you're in a 15% tax bracket, that's 25% in taxes on $7K. You'll end up with $5,250 or so.

[BankruptinNJ]

In most 401(k) plans, you can keep it in the plan if the balance is over $5K. You don't need to continue to make contributions. You will probably be tempted to cash it out and take the penalty on it. If you do roll it over, only do a direct rollover or you will probably just keep the cash.

One problem with indirect rollovers, is that the old plan will give it to you as a distribution and take 10%-25% in taxes in advance. In order to roll it into the new plan, you'd have to make up the difference (10%-25%) for it to be a complete rollover. This is where people end up just spending it.

I can't tell you whether it's in your best interest to do a direct rollover or just have it distributed and then spend it. That is a financial decision that will need to take some though. Know that you will be taxed on the "early" distribution and pay a 10% penalty on top of that. So, if you're in a 15% tax bracket, that's 25% in taxes on $7K. You'll end up with $5,250 or so.

The part that is in the 401(K) is less than $5,000. The rest is in the pension plan (yes, my employer still has a pension plan).

My problem is that I have no money and no income. It is so tempting to take the money now (if I'm allowed to) when I have just $2.00 in the bank and no money to buy food until next Friday when my boyfriend gets paid. I hate using retirement money but we are in desperate straits.

Should I do a direct rollover to an IRA or take a cash payment (less the fees) and keep it so I can pay my share of the rent and some medical bills?

If I roll it over, I see no point in an indirect rollover. A direct rollover seems to make more sense.

[justbroke]

I can't really tell you what to do, but I can help you with information. Depending on your age, the question about taking the distribution -- and spending it -- is easier the younger you are. The younger you are, the more time you have to make up the loss, while the older you are, the harder it is to recover your retirement.

I only say that because you appear to be on your last $1, but consider that you have not needed any of that retirement money before.