Cash out 401k and buy PM's?

I'm sure a lot of you have seen your 401k vanish over the past couple of years. I've lost about 40% of mine. Its value is down to 65k now. I've been considering cashing out my 401k and buying PM's. I understand that I will not only be taxed my bracket on this money, but will also pay a 10% penalty for early withdrawal. I calculate that I'll have 39k in hand if I cash out.

I have a really bad feeling about what we are about to experience economically here in the U.S. Like most people, I'm confused, concerned, frustrated and trying to process a ton of (often contradictory) information relating to the stock market and PM's.

I've always been very big on diversification, but I'm wavering as to the stock market. I aready have 10% of my savings in PM's.

Very interested in what you guys/ladies think about cashing out. Thanks.

Tom

 

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I would very strongly warn you against this. It will not only be "your" tax bracket, but much likely a higher one since it will be included as ordinary income. Selling at a low in the market looks attractive, but rarely is. I know its hard to stomach these prices, but I definitely would be a holder at current market levels. Its great you have already diversified 10% in PM, but what if PM are at a high right now and stocks at theri lows? You should NEVER chase past returns, though most small investors do. You are better to do what you have done, diversify, and ride out the highs and lows.

P.S. Of course I don't know your situation, so I am simply answering generically. If you are very close to retirement and have to have the funds left in your 401k then you could consider diversifying away from equities. This should have been done before, though.

 

I'd say no also but that's just my opinion.
Switching from a normal IRA to a Roth might be a good time if your income is down but that would be a roll over and not charge you the 10%.

 

Market down, normally not the time to sell.
PM up, normally not the time to buy.

10% in PM is actually higher then many people suggest, I think most would vote against increasing the percentage.

 

I also advise you not to cash out-- generally speaking, as we do not know your goals and other personal/private factors regarding your investments. Cash out and you loose out on compounding over time and take the nasty hit in taxes. Stay in and consider moving to more conservative holdings: money market, CDs, inflation protected bond funds... just ride it out.

 

Don't do it! Now is the time to feed the machine by bumping up your contribution. Good luck!

 

I second the "no" , but highly recommend if your earning record allows it to put as much as possible into a ROTH IRA account, and think about rolling the traditional IRA into the ROTH also. You will have to pay taxes on the rollover amount, but there is a special in that you can divide the rollover taxes into this year and next year. The main feature of the ROTH is that at the same age as the traditional, you can withdraw without paying taxes on the amount. Also the Roth doesn't have the 10% must be withdrawn per year after 70. Inheritance rules are different also. Consult the IRS ROTH pages.

Jim

 

An astounding NO. I wanted to do this 1-1/2 years ago when gold was @ <$950/oz & silver <$12/oz but I do not have a 401K & could not draw out without seperation from my employer. I also would not have advised anyone else to do it with their money, but was what I what I wanted to do with mine. Yes a bit of a gamble but as we see it would have paid off nicely, or to this point it would appear so. Timing is key, you have to know when to get in and when to get out, I did guess right on when to get in and maybe it was good that I did not, because I can say I don't know when would be a good time to get out. If I had that position right now, I would be getting out. You do not want to be getting in when others have made profits and are getting out. Since I could not draw out I decidied to "feed the machine" as RhinoEmpire said by bumping up my contribution and in effect DCA my way out and weather the storm. It has worked out nicely and am happy with my current position.

 

If you feel really strongly about it, read up on inverse traded funds to avoid the penalty of a withdrawal.

 

I was going to cash mine out for a different reason. I'm laid off. Instead I rolled mine over to an IRA. Don't do it. My brother in law cashed his out (about 35 grand) when he was laid off. It lasted less than six months.

 

Honestly man, the penalties and taxes are the killer. You know, it's rumored that China may dump gold to raise cash because the demand for manufactured goods has fallen so low. If that were to happen, things could change a lot. I do not know your housing situation, but everyone needs a place to live. If you could get a short sale or foreclosure, grab a first time buyer tax credit. Low interest loan, then it might be a good move ? No One. I repeat No One has a handle on this. And no one can accurately predict when the recovery will begin or how fast it will be.

Personally, I would wait just a bit. Some investments have a lot of room to fall yet. IMHO

 

+1 :thumb:

 

Wow, you guys have really given the OP some real sound advice. I've nothing to add except....:thumb:

 

Thanks for the responses, guys. I'm going to ride it out. Just a little scared for a minute there.

 

I cashed out mine and it was the best decision I ever made. I bought gold at $910 and never looked back. I hada lot of people tell me to ride it out but while riding it out, I lost another 8% so I finally cut bait and took the penalties like a man. It saved my life.

 

Nice rationalization for a gutsy move. I hope it all works out in the long run. Personally, I have stuck it out, as others here have suggested is a better move.

 

i disagree "nobody knows what will happen".

obviously, doc brown does!

either way is a risk, just decide what will be LESS of a risk. personally, i would ride it out.

 

Don't get scared so far you haven't lost anything. you don't lose until you cash out or buy something else. Mutual funds have had almost a constant pay back of 12% over the long term. I took a hit a couple of years ago but kept pumping money into it and now the market paid me back last year.

you have to remember that retirement investing if for the long term not short term. it is even longer than gold. you have to look 20-30 years ahead. it generally is a bad idea to put all your eggs in one basket. it also isn't worth handing the federal government half of what you put in there. it will take you 5x longer to recoup than to leave it.

I suggest maybe cutting back on your 401k and divert some of the money into a roth. there are limitations on roth's but it is all after tax spending so you don't pay any taxes on the money when you go to withdraw it.

Gold and silver are strictly there to try and secure monitary value. it is not something that you look to make a fortune on. if you were smart and back in the 80's when gold was like 200 and oz then yea you would be sitting pretty about now. if you had bought a 1 ounce every year just in base melt it would be like 26K but that is over a 20 year period.

Now take your 401k or mutual fund you have 67K on average mutual funds earn about 12% a year. so lets take that at 20 years. lets say you put 200 bucks a month or 2,400 a year (not including employeer). over a 20 year period you would have 839 almost 840K dollars.

 

Investing heavily in PMs is inherently risky. When you are talking about your pension 'safe' is the operative word...

 

Maybe you can borrow from your 401K at a low interest rate and invest the loan proceeds into PMs.