401k question

[flow4areasonuno]

It isn't something I'll do in the very near future (COVID and all) but I'm considering a move to a town with no Target, and have about $5,000 in my 401k (2-3 years worth of contributions). If I don't do a transfer to another 401k account, how soon would I receive the balance after quitting?

I've heard that it gets more complicated if you have more than about $1,000, which is why I ask

 

[Yetive]

Under $1000 you get a check by the last day of the quarter following the quarter you terminate.
$1000-$5000 you can choose a check or rollover. If you do not make a choice, the money will be put in an IRA for you at Key Bank. Again, by the last day of the quarter following the quarter you terminate.
Over $5000 you can leave where it is for as long as you like.

 

[buliSBI]

NO!!!!!!!!!!!!!!!!!!!!!!!!!

You will get penalized and taxed if its not re-invested.

 

[SallyHoover]

You can open your own IRA with whoever you want with the money. If you roll it over directly then you won't be subject to income tax and penalty tax that would apply.

 

[Tarshitsucks]

NO!!!!!!!!!!!!!!!!!!!!!!!!!

You will get penalized and taxed if its not re-invested.

I agree I knew someone who taxed pretty badly.

 

[Planosss]

I think 401k withdrawal penalties were suspended due to covid.

 

[Hardlinesmaster]

From irs.gov

Q7. May I repay a coronavirus-related distribution?​

A7. In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.

If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022. See sections 4.D, 4.E, and 4.F of Notice 2005-92 for additional examples.

 

[Hardlinesmaster]

Q6. When do I have to pay taxes on coronavirus-related distributions?​

A6. The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

 

[jackandcat]

I think 401k withdrawal penalties were suspended due to covid.

The 10% premature withdrawal penalties are suspended. You'll still owe Federal, State and local income taxes on the money. They will have some tax withholding taken from the "cash out" of your 401(k) account, but usually the withholding amount isn't enough to pay the taxes due, particularly as the lump sum could bump you into a higher tax bracket.

Call the Target 401(k) people and find out if you have enough assets in your 401(k) to maintain your money within Target's plan. You might have a high enough balance required to avoid a "cash out". Leaving your money in Target's 401(k) simplifies matters when you join a new employer: you can then initiate a custodian-to-custodian rollover to the "new" 401(k) without incurring transfer-out fees.

You could request a custodian-to-custodian rollover to an IRA at a stock brokerage, credit union or bank. The downside to moving your 401(k) money to another custodian is if you will soon be joining a new employer's 401(k) plan, you might incur a transfer-out (ACAT) fee from the broker for a custodian-to-custodian transfer to the "new" 401k. You might also hit an IRA closure fee from the bank/broker/credit union. Those ACAT fees could run as high as $100, and another $50 for an IRA closure fee.

Of course, if you want to make your own investment choices, or if your new employer's 401(k) plan is lousy (i.e. high fees, no employer match), you might prefer a stock brokerage IRA. However, for many people a direct rollover from your "old" Target 401(k) plan to your new employer's 401(k) plan is the simplest choice.