Employer who laid me off, forcing 401k term. Opts?

Question

I was laid of last year, my unemployment claim just expired, & now my employer sent me a "certified letter", requesting I come in immediately to sign "termination of my 401k plan". I'm 33, and it's the only 401k I've ever had and it's at only $1,500 right now. Shamefully, I know nothing about 401k plans, but I heard I shouldn't allow them to cut me a check, due to high tax penalties (?). I've heard people say you need to "roll it over" into an IRA? I have a credit union bank, but I don't trust banks, and need some good advise before I ask them for assistance. At my age, being that I'm jobless & broke, would I qualify for some kind of "hardship" tax reduction if I wanted to cash it out, or is that a bad idea, and should keep it toward retirement?
    Also, I know my old employer has a history of trying to screw over the laid off employees using any lies they can scheme up, is this move she's making have something to do with tax season coming up, or perhaps she's trying to prevent me from receiving any future unemployment (I'd get retro pay, if the new FL governor renews it)?
   The whole certified letter thing has me highly suspicious of her real motive(s). I'd be so grateful for any and all really advise on how to handle this. Thank you very much! 
PS: I'm attending community college student (on short term financial aid), does that allow me any additional perks? Can't hurt too ask right?

Judy · Accepted Answer

NO there's no "hardship" exception to the tax and penalty if you take the money out.

Any bank or any mutual fund family will have rollover IRA's.  It's much simpler if you choose a place for your new IRA and the 401K custodian just sends them a check for the amount - this is called a direct rollover.  It's possible to roll it over even if you get a check, as long as you do it within 60 days, but try for a direct rollover.

What you do with your 401K has nothing to do with your former employer's taxes, or with your eligibility for unemployment.

Anonymous · Answer

Go to your bank.  Open an IRA (empty right now).  Have the bank fill out the paperwork for a trustee-to-trustee transfer.  This will allow your 401(k) to roll completely into the IRA.  No tax, no penalty.

If you take the money, there is a 10% penalty (there is no hardship exception) and income tax.

? · Answer

Your x-business enterprise is actual. there's no longer something incorrect with the qualified letter; that purely proves that they tried to touch you correct to the account. in case you do no longer something, they'd finally purely take the money even in spite of the undeniable fact that that's very no longer likely. bypass ask on the credit union advice on the thank you to roll it over into an IRA. they are going to be happy that can assist you with that and you will dodge effects in contact with cashing it out. If this is in straight forward terms $a million,4 hundred and you're unemployed, you need to no longer be paying any tax on it in any case and the ten% penalty may well be $a hundred and forty.00 in case you prefer to in straight forward terms take the money. Your income will in all hazard no longer be sufficient (purely unemployment and what you get in case you do no longer roll over the 401k) which you need to no longer owe lots (if any) income tax in any case. in case you do finally end up owing some income tax, seem into the desire Tax credit for faculty youngsters. the hot credit modifies the present desire credit for tax years 2009 and 2010, making the desire credit available to a broader selection of taxpayers. lots of those eligible will qualify for the optimal annual credit of $2,500 in line with student. and you're no longer the only individual who's jobless and broke today. So attempt to no longer think of too lots approximately it. a minimum of you're decrease back in school attempting to extra useful your self to get a optimistically extra useful activity than the single you lost.

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Employer who laid me off, forcing 401k term. Opts?

3 Answers