Cash Out Retirement Account vs Rollover to IRA

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docjok
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Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sat Jun 23, 2018 6:16 pm

Hi,

I'm in a sticky situation. I'm a surgeon who just finished residency. My employee retirement account has accumulated about $50K in my time as a resident. I have one more year of training to do elsewhere and I have been given the option of cashing out the $50K at 30% penalty/tax for a lump sum of about $36K or I can roll it all over into a new employer's retirement account or an IRA. After one year, I anticipate my starting salary as a surgeon to be $600K-1M, given starting salary averages in my particular specialty and depending upon geography. This upcoming year however will be tough because I've been in extreme financial distress for a couple years due to various necessary/emergency expenses and eventually falling behind on my bills, now with about $17K in outstanding debt. And now, due to circumstances, my parents have had a significant drop in income such that my 2 siblings' school fees have gone unpaid and they will be unable to return to college unless they pay last semester's tuition, $16K between both of them, in full. Luckily, one sibling has managed to obtain scholarship money to cover the rest of his college career in combination with previous loans. The other has not but will be able to commute from home if necessary. It's just this $16K that seems to be standing in the way at the moment and my parents won't be able to cover it on their own as has been the case for me and my other siblings who've long since completed college. Private/PLUS loans are not an option as almost no one in my family has satisfactory credit.

With $36K I could take care of all of my consumer debt, about $17K, much of which has gone to collections in some form or another and I could pay some/most/all of my siblings' outstanding school fees allowing them to return and have the same opportunities that I did. I'm thinking that the benefit now will exceed whatever benefit there is when I'm able to withdraw from a retirement account at 60, particularly given my anticipated income level.

What should I do? Should I cash out at a 30% loss, pay off my debts, and help support by siblings' education given my family circumstance? Or should I just put it into a new retirement account and just continue to float on the debt and tell my siblings to look elsewhere? Is my earning potential not relevant? Please help? I have about 2 days to decide this if I end up helping my siblings with their school fees as it takes 1.5-2 months to process.

ResearchMed
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by ResearchMed » Sat Jun 23, 2018 6:27 pm

docjok wrote:
Sat Jun 23, 2018 6:16 pm
Hi,

I'm in a sticky situation. I'm a surgeon who just finished residency. My employee retirement account has accumulated about $50K in my time as a resident. I have one more year of training to do elsewhere and I have been given the option of cashing out the $50K at 30% penalty/tax for a lump sum of about $36K or I can roll it all over into a new employer's retirement account or an IRA. After one year, I anticipate my starting salary as a surgeon to be $600K-1M, given starting salary averages in my particular specialty and depending upon geography. This upcoming year however will be tough because I've been in extreme financial distress for a couple years due to various necessary/emergency expenses and eventually falling behind on my bills, now with about $17K in outstanding debt. And now, due to circumstances, my parents have had a significant drop in income such that my 2 siblings' school fees have gone unpaid and they will be unable to return to college unless they pay last semester's tuition, $16K between both of them, in full. Luckily, one sibling has managed to obtain scholarship money to cover the rest of his college career in combination with previous loans. The other has not but will be able to commute from home if necessary. It's just this $16K that seems to be standing in the way at the moment and my parents won't be able to cover it on their own as has been the case for me and my other siblings who've long since completed college. Private/PLUS loans are not an option as almost no one in my family has satisfactory credit.

With $36K I could take care of all of my consumer debt, about $17K, much of which has gone to collections in some form or another and I could pay some/most/all of my siblings' outstanding school fees allowing them to return and have the same opportunities that I did. I'm thinking that the benefit now will exceed whatever benefit there is when I'm able to withdraw from a retirement account at 60, particularly given my anticipated income level.

What should I do? Should I cash out at a 30% loss, pay off my debts, and help support by siblings' education given my family circumstance? Or should I just put it into a new retirement account and just continue to float on the debt and tell my siblings to look elsewhere? Is my earning potential not relevant? Please help? I have about 2 days to decide this if I end up helping my siblings with their school fees as it takes 1.5-2 months to process.
A bit more than a year ago, you apparently faced a similar decision, considering taking retirement money "out" to pay for a nicer place.
docjok wrote:
Fri Apr 07, 2017 12:12 pm
Hi,

I'm a physician resident who will be moving to NYC next year to complete my training. Currently I"m working in Illinois and instead of paying into social security I'm paying into an state employer based retirement plan. By the time I leave I'll have the option to cash out on it, it'll be about $30,000 after all the taxes. I could also roll it over into an IRA. Either way, I won't be leaving it with Illinois since they are on the brink of Detroit-level bankruptcy and I do not trust that my funds will be available over the long term.

I'll be in NYC for a year after which I'll be making $500K to 1mil as a fully trained surgeon. I am in my early thirties. NYC is terribly expensive and I'd like to have a half decent apartment while there ($2500-3300/month). I could do so fairly easily if I supplement my NYC salary (roughly $77K pretax) with roughly 10K from my retirement funds.

Is this unwise? Does my upcoming salary jump allow me to spend more of what I have now or should I just leave it in an IRA?
What did you do?

You mention your family has had credit problems.
I'd try to be VERY careful not to continue this pattern. There can *always* "be a reason" to spend money in a way that isn't the "most prudent". It can become a very serious problem if this is the type of choice one keeps making.

We can't know the family dynamics or what obligations you do have for siblings, or is it just that you'd "like to help"?

But this does sound like a slippery slope, and not the first ride.

And where did that debt come from?

Don't count on those big paychecks before you've even got the first one.
You are still in a situation where that "big paycheck" is a year away, at the least.
Remember, last year, you thought you'd be making $500k starting *this* year.

RM
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02nz
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by 02nz » Sat Jun 23, 2018 6:32 pm

You're just finishing residency and haven't even started earning "normal" income in your profession. So while the desire to help your sibling is laudable, first you need to get your own finances in order, and that definitely doesn't involve paying your sibling's education at the cost of a huge penalty on your IRA savings. So my advice would be to roll over the $50K, and help your sibling if you're willing and able - once you're actually making good money in your new job. In the meantime, your sibling can take time off school and get a job.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sat Jun 23, 2018 6:37 pm

Sorry, I'm still in the same position...only thing that has changed is that before I was in the middle of residency, finishing up and looking to start in NYC. Now I'm actually finished and in the process of moving to NYC at the end of summer. With the housing thing, I got a great place for about $1500/month. With the car thing, I fell behind on payments due to other expenses and now am looking to either give up the car or use this lump sum to pay the remainder off in full, about $8000.

I can't turn my back on my siblings if it comes down to me; especially after I've had the opportunity to become a surgeon. It's more than just a nice gesture.

Anyway, sorry if the timing of my posts has caused confusion. No changes other than that I'm just a much closer to moving to NYC now.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sat Jun 23, 2018 6:41 pm

02nz wrote:
Sat Jun 23, 2018 6:32 pm
You're just finishing residency and haven't even started earning "normal" income in your profession. So while the desire to help your sibling is laudable, first you need to get your own finances in order, and that definitely doesn't involve paying your sibling's education at the cost of a huge penalty on your IRA savings. So my advice would be to roll over the $50K, and help your sibling if you're willing and able - once you're actually making good money in your new job. In the meantime, your sibling can take time off school and get a job.
I get what you're saying and would agree but one of them at least is truly "Harvard-bound" as I was at his age. I feel like taking time off from school would severely hamper him. The kid got a scholarship and everything. If he has any potential to "do something big," I just feel like time off would lead to him losing focus. I'm happy to help, but only if it is smart to do so. Are there any other options at all?

ResearchMed
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by ResearchMed » Sat Jun 23, 2018 6:44 pm

docjok wrote:
Sat Jun 23, 2018 6:37 pm
Sorry, I'm still in the same position...only thing that has changed is that before I was in the middle of residency, finishing up and looking to start in NYC. Now I'm actually finished and in the process of moving to NYC at the end of summer. With the housing thing, I got a great place for about $1500/month. With the car thing, I fell behind on payments due to other expenses and now am looking to either give up the car or use this lump sum to pay the remainder off in full, about $8000.

I can't turn my back on my siblings if it comes down to me; especially after I've had the opportunity to become a surgeon. It's more than just a nice gesture.

Anyway, sorry if the timing of my posts has caused confusion. No changes other than that I'm just a much closer to moving to NYC now.
Okay... sorry I misunderstood the timeline.

But as mentioned above, you can help your siblings (or any family members) once you have that income.

If necessary, they could take a year off.
Many have taken time off, and I am among them, having taken time off before graduating from college.
It didn't interfere with my ending up with a Ph.D., and having a successful and satisfying career.
(If anything, I used to joke that while the other students - about 5 years younger than me - were out partying on the weekends, I was studying away and doing much better than just about all of them. I took it all that much more seriously, etc.)

Added: About the "Harvard bound"... that doesn't mean everything, and if one doesn't go to "Harvard" (or similar) earlier, one can get there later. Definitely!

RM
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Grt2bOutdoors
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by Grt2bOutdoors » Sat Jun 23, 2018 6:49 pm

If you are moving to NYC, give up the car, using either your feet, mass transit or Uber is how we natives get around town. Parking in NYC will cost you an arm and leg, and if you decide to venture street parking if the meters don’t get you, the ticket agents will.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sat Jun 23, 2018 7:01 pm

Grt2bOutdoors wrote:
Sat Jun 23, 2018 6:49 pm
If you are moving to NYC, give up the car, using either your feet, mass transit or Uber is how we natives get around town. Parking in NYC will cost you an arm and leg, and if you decide to venture street parking if the meters don’t get you, the ticket agents will.
Indeed, I've already decided the car will not come with me.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sat Jun 23, 2018 7:16 pm

Also, independent of my siblings school costs, anyone have any thoughts on my own consumer debt?

shariron
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by shariron » Sat Jun 23, 2018 7:23 pm

Answer: Rollover to IRA

Disclosure: I did not read a word of this thread other than the title. That's because I don't believe there is any scenario that would yield the answer "cash out retirement account"

carolinaman
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by carolinaman » Sun Jun 24, 2018 6:28 am

I will give an un-Boglehead answer. Cash out your IRA. If you save a decent part of your new salary (and you should), you should do fine with retirement savings. You obviously are obsessed with doing this and I say go for it.

I have one caveat. There are always be financial needs that withdrawals from retirement savings can satisfy. You need to discipline yourself to avoid those temptations. Otherwise, even at your lofty salary, you may have inadequate savings for retirement. You mention the financial problems and bad credit of your family. Do not fall prey to the same problems. Learn to live within your means and manage your finances rather than letting them manage you. It may be helpful for you to read one of Dave Ramsay's books on managing finances. He gives excellent advice on managing finances and I believe it will be helpful to you, especially as you start your career.

https://www.daveramsey.com/

student
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by student » Sun Jun 24, 2018 7:03 am

carolinaman wrote:
Sun Jun 24, 2018 6:28 am
I will give an un-Boglehead answer. Cash out your IRA. If you save a decent part of your new salary (and you should), you should do fine with retirement savings. You obviously are obsessed with doing this and I say go for it.

I have one caveat. There are always be financial needs that withdrawals from retirement savings can satisfy. You need to discipline yourself to avoid those temptations. Otherwise, even at your lofty salary, you may have inadequate savings for retirement. You mention the financial problems and bad credit of your family. Do not fall prey to the same problems. Learn to live within your means and manage your finances rather than letting them manage you. It may be helpful for you to read one of Dave Ramsay's books on managing finances. He gives excellent advice on managing finances and I believe it will be helpful to you, especially as you start your career.

https://www.daveramsey.com/
I agree. This is a very un-Boglehead answer. However, given the OP's earning potential in one year, I think a one-time non-optimal decision is ok especially since OP mentioned that his/her parents covered his/her college cost.

OP: You also wrote that you have other siblings who have completed college long time ago. Are they able to help as your parents also covered their college cost?

doc4sleep
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by doc4sleep » Sun Jun 24, 2018 7:13 am

With $36K I could take care of all of my consumer debt, about $17K, much of which has gone to collections
It seems you have already started down a path of poor financial decisions. You still have 1 year of fellowship in a high cost of living area and are in no position to help others when you are dead broke. (We) Docs are some of the brightest people who make some of the dumbest financial decisions around. It wasn't until I ran across Dave Ramsey that I was able to recognize the stupid decisions I had made.

You are young and have the opportunity to turn it around now. Don't get ahead of yourself. Don't "count your chickens be before they are hatched". You are not yet in a position to help others when you have debts in collection. Your siblings lives will not be ruined if they have to work to pay for tuition at a school they can afford. You are not responsible for what they do with the potential talent they have.

I would not cash out the retirement under any conditions. It may not seem like much but that $50K left to grow tax free at S&P rates for 40 yrs could be worth over $2M.

The Wizard
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by The Wizard » Sun Jun 24, 2018 7:47 am

Have your parents take out a home equity line of credit (HELOC) to pay for your siblings college expenses for now.
Then in a year or so, after a few new $50k monthly paychecks, simply pay off their HELOC in full...
Last edited by The Wizard on Sun Jun 24, 2018 8:05 am, edited 1 time in total.
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retiredjg
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by retiredjg » Sun Jun 24, 2018 7:50 am

I would give up the car, negotiate a payment plan with the creditors, cash out enough to help the siblings, and leave the rest in there or roll it to an IRA. If a partial withdrawal is not possible, I'd cash it all out. Either way, remember to have some withheld for taxes.

This $50k will mean nothing to you by the time you get to retirement. There is no way I'd leave my siblings in a lurch in order to keep something I'll probably never need.

My answer would be different if you were in a minimum wage career with 3 kids of your own.

You need to be honest with yourself about your role in getting to where you are. Not all of this is just bad fortune. Some of it, maybe all of it, must be poor financial decisions on your part.

Having more money is not the solution to your spending issue, whatever it may be. Having more money will make this worse, not better. You need to get out ahead of this now or you will have a financial headache your entire life. Wouldn't that be a crying shame - a high earner with chronic overwhelming money problems?

Here's some reading material you might find helpful. WCI (White Coat Investor) is a poster here.


viewtopic.php?t=206272

https://www.amazon.com/White-Coat-Inves ... t+investor

Good luck!

PS. I'd get the older siblings to toss in a couple of thousand if possible.

sophie1
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by sophie1 » Sun Jun 24, 2018 8:12 am

Why are you holding yourself responsible for your siblings' college costs? That should be between them and your parents. The fact is that at this moment in time, you're broke and in no position to provide handouts. The fact that your siblings are expecting you to drain your retirement accounts to provide those handouts does not speak well of the situation. That should be off limits.

As for what to do with the money: I don't know when your new job starts, but if it's not until next year, I suggest rolling it into a Roth IRA, and paying taxes from the rollover amount (I think you can do this with no penalty). Alternatively, just leave it in place for now. You can roll it into your new employer's retirement plan, but you'll want to learn more about it first. You may also wish to set up a solo 401K to handle "profit sharing contributions" from side income. Under no circumstances should you roll it into a traditional or rollover IRA. It will block you from doing back-door Roth IRA contributions later.

If you are in dire need of money to avoid getting sent to collections, you could try to get a new credit card with a 0% interest on balance transfers deal. Since you're moving, this is also a good opportunity to sell stuff, and use the proceeds to meet credit card payments. It may be worth considering a loan from the retirement account if that's possible. Ordinarily you could also borrow money from family, which might not be a bad idea as it would correct the impression they apparently have of your financial situation.

investorpeter
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by investorpeter » Sun Jun 24, 2018 9:45 am

I would cash out just enough to pay the tuition expenses. Roll over the rest. This is a rare situation where paying the penalty is worth it to help family in a temporary crisis. In the long run the hit to your retirement account will be negligible if you follow a BH lifestyle for the remainder of your life. Keep your spending well below your salary.

Lots of options to handle the personal debt. The best would be to pay it off immediately once you start getting your regular salary.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sun Jun 24, 2018 10:01 am

Yikes, so many different ideas. Thanks for the replies so far.

I understand where those who say I'm not responsible for my siblings are coming from. If they were both C students I would not even think twice about telling them to look elsewhere. But given my own unlikely educational success, I could not imagine leaving them behind now that my parents are less able to fund them as they were me. They were such knuckleheads before, and their progress, like mine, has been admittedly unexpected. The situation is precarious and I, we, just can't risk them falling back into old habits from being out of school.

That said, I will try to be more aggressive about seeing if there are any other options at all; see who, if anyone, else has a retirement account to drain lol. This shouldn't all fall on me.

Regardless, there is still the matter of my own expenses requiring attention. I had things under control for over 10 years but in the past year lost control after breaking the bank traveling the country for fellowship interviews. I could not keep up with my expenses and my credit and everything went to crap. I am certainly not above acknowledging my own missteps in this journey. It has been a costly learning experience, but one that no doubt has me on guard for the future, so it has also taught me a lesson at a time when the stakes are much lower than what they will likely be in the later on. I have a better sense of the mistakes I made and what I need to do to avoid them. I'm avoiding loans/credit like the plague now. At this point, given my own situation, I'll never finance a car again. I like nature, I'm not into flashy stuff, extravagant trips, anything like that and don't see myself going down that road. Most of my consumer debt is over what I perceived to be "necessary" expenses. I used a credit card to move to a new city to do residency. I financed a car when my old car broke down, on my way to the ICU of all places, and I said to myself, "I cannot risk having an unreliable car." I have a comparatively small dental bill. I took out another loan to travel across the country for fellowship interviews etc etc etc.

That said, at some point I will still need to clean up this mess that I have made over the past year. I could sit on things for a year until I get a real job and let them get even further out of control as has already started...collections, repo etc. I say this seriously, as my credit score is already in the dumps and could not get any worse; is there anything worse that could happen? Or I can wipe out all the debt now with the cash out.

Thoughts?

ResearchMed
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by ResearchMed » Sun Jun 24, 2018 10:48 am

docjok wrote:
Sun Jun 24, 2018 10:01 am
Yikes, so many different ideas. Thanks for the replies so far.

I understand where those who say I'm not responsible for my siblings are coming from. If they were both C students I would not even think twice about telling them to look elsewhere. But given my own unlikely educational success, I could not imagine leaving them behind now that my parents are less able to fund them as they were me. They were such knuckleheads before, and their progress, like mine, has been admittedly unexpected. The situation is precarious and I, we, just can't risk them falling back into old habits from being out of school.

That said, I will try to be more aggressive about seeing if there are any other options at all; see who, if anyone, else has a retirement account to drain lol. This shouldn't all fall on me.

Regardless, there is still the matter of my own expenses requiring attention. I had things under control for over 10 years but in the past year lost control after breaking the bank traveling the country for fellowship interviews. I could not keep up with my expenses and my credit and everything went to crap. I am certainly not above acknowledging my own missteps in this journey. It has been a costly learning experience, but one that no doubt has me on guard for the future, so it has also taught me a lesson at a time when the stakes are much lower than what they will likely be in the later on. I have a better sense of the mistakes I made and what I need to do to avoid them. I'm avoiding loans/credit like the plague now. At this point, given my own situation, I'll never finance a car again. I like nature, I'm not into flashy stuff, extravagant trips, anything like that and don't see myself going down that road. Most of my consumer debt is over what I perceived to be "necessary" expenses. I used a credit card to move to a new city to do residency. I financed a car when my old car broke down, on my way to the ICU of all places, and I said to myself, "I cannot risk having an unreliable car." I have a comparatively small dental bill. I took out another loan to travel across the country for fellowship interviews etc etc etc.

That said, at some point I will still need to clean up this mess that I have made over the past year. I could sit on things for a year until I get a real job and let them get even further out of control as has already started...collections, repo etc. I say this seriously, as my credit score is already in the dumps and could not get any worse; is there anything worse that could happen? Or I can wipe out all the debt now with the cash out.

Thoughts?
It's SO easy to rationalize... all the time, every time.

This seems to be a pattern, perhaps one picked up from family, which is only relevant because you are still financially intertwined with them.

What are the "old habits" you refer to, regarding siblings and the apparent need for them to stay in school and not take a year off and/or earn money to continue?
IF they would fall into "old habits" only because they had to postpone continuing school for a year (or even several), then I'm not sure things are under control even with your cash hand-out for school expenses.

There just seems to be an serious undercurrent that problems will just continue.

When you are actually earning $500k/yr, *that* is the time to be generous if you wish - and apparently it's not that far away (1 year?).
But what about these old habits that your sibs might fall back into if you don't pay up?
Are you actually enabling them somehow, so they don't have the chance to succeed on their own, the way you are succeeding.

Many people take time off before college graduation, whether to earn more money to pay for the next years, to travel the world, or just to sort things out. It is often a huge plus, even if it is annoying/difficult at the time.

I just keep sensing rationalizing some ongoing pattern of family financial problems, including your own...

RM
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ft2010
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by ft2010 » Sun Jun 24, 2018 11:35 am

OP,

Do you also have school loans that you need payoff after you complete residency program and start a real high paying job? How much is that, and more importantly do you have an idea on your future budget with loan payment included?

If your parents had indeed paid your way to attend medical school (or a majority of such expenses), and as a result or due to circumstances cannot provide similar support to your young siblings, then it's reasonable in some culture to expect you (the eldest) to step in to facilitate the family tradition. For example, many came from immigrants family background would understand that. This is not to say for you to take on the entire burden at all cost, but rather in a rational way both for timing and amounts.

That said, I also agree with above poster that taking time off and work a job before finishing school should not be that detrimental to a young person's future if he or she is truly bright. If there is undercurrent circumstances you are not comfortable telling in this forum, talk with your parents to ensure the sibling to live at home (to keep expenses low and more importantly keep an eye on him/her), only then you will make a promise to provide certain monetary support (e.g. next year after you are getting the big salary).

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Earl Lemongrab
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by Earl Lemongrab » Sun Jun 24, 2018 1:13 pm

docjok wrote:
Sat Jun 23, 2018 6:16 pm
I have one more year of training to do elsewhere and I have been given the option of cashing out the $50K at 30% penalty/tax for a lump sum of about $36K or I can roll it all over into a new employer's retirement account or an IRA.
To clarify, that's not the tax you would owe. The amount would be added to your ordinary income, so you would be paying your federal and state tax on it, plus the 10% penalty. The witholding is 20%. You might pay more or less than that depending on your situation.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

gilgamesh
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by gilgamesh » Sun Jun 24, 2018 1:33 pm

$600k-$1M/year very soon...easy decision. Cash out, pay your debts and help out you siblings/parent...chump change compared to the future income/wealth, but what this “chump change” does now cannot be bought for even millions later - I mean the feeling of having helped out.

P.S: unrelated...Watch our for burn-out - your generation seems to reach it much quicker than mine...just sayin!

chevca
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by chevca » Sun Jun 24, 2018 1:48 pm

I'm on the cash out and pay off debts while helping family also.

Is it ideal? No. Will it be a big deal in the grand scheme of the OPs retirement plans? No. This will be peanuts and long forgotten after a few years of the OP's new income.

ResearchMed
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by ResearchMed » Sun Jun 24, 2018 2:05 pm

Life happens.

Things don't always turn out as expected.

I'd feel very differently about this if OP was already finished, and had a signed contract and was about to start that new, high-paying job.
That would be quite different.

I continue to be worried that there seem to have been many financial mistakes or other decisions that didn't work out as planned...

Is there no way the sibs could work for a year or otherwise postpone?
And meanwhile, OP takes care of own financial difficulties until the future both looks and "IS" brighter?

RM
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docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sun Jun 24, 2018 2:51 pm

ft2010 wrote:
Sun Jun 24, 2018 11:35 am
OP,

Do you also have school loans that you need payoff after you complete residency program and start a real high paying job? How much is that, and more importantly do you have an idea on your future budget with loan payment included?

If your parents had indeed paid your way to attend medical school (or a majority of such expenses), and as a result or due to circumstances cannot provide similar support to your young siblings, then it's reasonable in some culture to expect you (the eldest) to step in to facilitate the family tradition. For example, many came from immigrants family background would understand that. This is not to say for you to take on the entire burden at all cost, but rather in a rational way both for timing and amounts.

That said, I also agree with above poster that taking time off and work a job before finishing school should not be that detrimental to a young person's future if he or she is truly bright. If there is undercurrent circumstances you are not comfortable telling in this forum, talk with your parents to ensure the sibling to live at home (to keep expenses low and more importantly keep an eye on him/her), only then you will make a promise to provide certain monetary support (e.g. next year after you are getting the big salary).
To be clear, I have loans from both college and med school totaling about $160K; currently in forbearance. My parents were able to meet my estimated family contribution of about $10K every year I was in college. I do not expect this to be a problem once I get a real job.

Thanks for understanding the cultural thing. I am noticing that there are some cultures in which it would be absolute blasphemy to not turn back and contribute to educational expenses of younger siblings when needed. It's the same as the cultural differences regarding utilizing a nursing home for infirmed parents. Now that my parent's financial situation is starting to change I'm finding this out and realizing that indeed it is possible to be exploited in this way. I'm trying to avoid that. That said, I am from one of these immigrant families and me telling my teenaged siblings "I did it myself, you do it yourself" after advancing so much in my education/career...there is no greater blasphemy. At the very least, I would be expected to contribute partially if my parents could not. I am fine with this, it does not offend me in the least.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sun Jun 24, 2018 2:55 pm

Earl Lemongrab wrote:
Sun Jun 24, 2018 1:13 pm
docjok wrote:
Sat Jun 23, 2018 6:16 pm
I have one more year of training to do elsewhere and I have been given the option of cashing out the $50K at 30% penalty/tax for a lump sum of about $36K or I can roll it all over into a new employer's retirement account or an IRA.
To clarify, that's not the tax you would owe. The amount would be added to your ordinary income, so you would be paying your federal and state tax on it, plus the 10% penalty. The witholding is 20%. You might pay more or less than that depending on your situation.
Hmmm, you seem to be familiar with this particular plan, thanks for the clarification. And to be clear, I will collect a check for roughly $36K.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sun Jun 24, 2018 8:34 pm

Ok, I'm gonna do my best not to take on this entire thing by myself. I have other working siblings who should be able to contribute something. I think that best thing for me to do, though of course not ideal, is to take out a partial amount to pay off the most emergent of my consumer debt, slightly less urgent debt will just have to be left simmering until I get a real job, and maybe I'll take out a bit extra for a partial payment to my siblings' tuition if it becomes necessary.

The rest, I will rollover into an IRA. One poster said that I should not do a traditional under any circumstances. Why exactly? How does this backdoor Roth work? Doesn't doing a Roth mean I'd have to cash out the account at a 30% loss and then use the remains to start the Roth? How is this better than a traditional?

Edit: I've been doing the math. It seems like rolling over about $35K and taking out 15K, as opposed to rolling over the entire 50K, would earn me not all that much less by the time I'm 60, all things considered. I'd feel very comfortable doing something like this.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Sun Jun 24, 2018 9:37 pm

Another question I have right now is: my credit is through the floor given my financial issues of the past year. A credit card company has offered to settle my debt at a 65% off, about $3K from a balance of almost $10K. I would be able to pay the taxes on the difference (about $1750). I don't think my credit score can get any worse, and I'll basically going to have to start from scratch and wait another 7 years for reestablish my credit. Should I take the settlement deal, since my credit report can't get any worse? Am I missing something here?

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Earl Lemongrab
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by Earl Lemongrab » Sun Jun 24, 2018 11:57 pm

docjok wrote:
Sun Jun 24, 2018 2:55 pm
Earl Lemongrab wrote:
Sun Jun 24, 2018 1:13 pm
docjok wrote:
Sat Jun 23, 2018 6:16 pm
I have one more year of training to do elsewhere and I have been given the option of cashing out the $50K at 30% penalty/tax for a lump sum of about $36K or I can roll it all over into a new employer's retirement account or an IRA.
To clarify, that's not the tax you would owe. The amount would be added to your ordinary income, so you would be paying your federal and state tax on it, plus the 10% penalty. The witholding is 20%. You might pay more or less than that depending on your situation.
Hmmm, you seem to be familiar with this particular plan, thanks for the clarification. And to be clear, I will collect a check for roughly $36K.
The check you get at the time of distribution is not what you will necessarily end up with. To get a true accounting, you need to estimate your state and federal income tax for this year and see what it really is.

For instance, if you'd end up in the 22% bracket with 6% state income tax, you'd clear just 31k. If you'd be in the 12% bracket in a state with no income tax, then you have 39k.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

retiredjg
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by retiredjg » Mon Jun 25, 2018 5:28 am

docjok wrote:
Sun Jun 24, 2018 8:34 pm
The rest, I will rollover into an IRA. One poster said that I should not do a traditional under any circumstances. Why exactly? How does this backdoor Roth work? Doesn't doing a Roth mean I'd have to cash out the account at a 30% loss and then use the remains to start the Roth? How is this better than a traditional?
Rolling to traditional IRA would be fine for your situation now. Forget about the back door for the time being. You do not need it now and it is complicated. If you need the back door later, you can roll your IRA into a 401k then.

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BL
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by BL » Mon Jun 25, 2018 7:28 am

Good luck to you on resolving financial difficulties. Please get out of the habit of borrowing (using Credit Cards) whenever you want, or even need, something; as you have seen, it gets you into terrible trouble. Picking up and studying a Dave Ramsey book might be one way of changing your thinking. Then pass it on to your family members. Jane Bryant Quinn has books and articles on managing your money. There are others.

You might want to check out how a credit rating affects your future job prospects, renting, insurance, and other purchases and commitments. I do know that it has affected others in unexpected ways.

Check your credit every year at each of 3 companies through this federally approved site:
https://www.annualcreditreport.com
Watch out for scams elsewhere.

docjok
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by docjok » Mon Jun 25, 2018 8:00 am

BL wrote:
Mon Jun 25, 2018 7:28 am
Good luck to you on resolving financial difficulties. Please get out of the habit of borrowing (using Credit Cards) whenever you want, or even need, something; as you have seen, it gets you into terrible trouble. Picking up and studying a Dave Ramsey book might be one way of changing your thinking. Then pass it on to your family members. Jane Bryant Quinn has books and articles on managing your money. There are others.

You might want to check out how a credit rating affects your future job prospects, renting, insurance, and other purchases and commitments. I do know that it has affected others in unexpected ways.

Check your credit every year at each of 3 companies through this federally approved site:
https://www.annualcreditreport.com
Watch out for scams elsewhere.
I'm aware of most of these. I don't intend on ever using credit again except for maybe a house if for some reason I decide against purchasing outright. If that does happen, it won't be for many years, and I am strongly opposed to taking out a mortgage given my experiences with all this. Renting, I understand that I may very well need to bite the bullet and pay a year's rent up front or something like that; but that is already the situation for me. Will it be made worse by settling? Regarding job prospects, I know this is a consideration for lots of jobs, especially those involving finance, but is the consideration the same for physicians/surgeons? Especially those starting out? And will my situation be made worse by me settling some some of these debts?

retiredjg
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by retiredjg » Mon Jun 25, 2018 8:21 am

There are some non-profit debt counselors who help people manage debt. They charge no fees to the debtor. They can negotiate on your behalf with your creditors and help set up a reasonable payment plan. Debt consolidation may be a part of it, I'm not sure. A friend of mine found one of these services at a credit union and found their help very useful.

There are also some sharks and predators out there that do a similar service. I do not know how to find the ones who actually provide a service vs finding the ones that are predatory. But I think finding this at a credit union vs a bank is one of the right steps.

Not suggesting you toss your school debt into that since it is already taken care of. But it might be useful for the other items on your agenda.

I have to say I am suspicious of the offer from the credit card. It might very well be legit - similar to the service I just mentioned, but skipping the middle man. However, my opinion of credit card companies is that everything they do is for their financial benefit, not the customer's financial benefit. I'd be careful they are not sneaking something in that is unsavory like 28% interest on the remaining balance.


I think it will take you 7 consecutive clean years to get your credit up from the depths no matter what you do. I doubt that taking this offer will make things worse, but I really don't know. I have no idea if you should do it or not. That one item might be a good new topic to ask about.

Jags4186
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by Jags4186 » Mon Jun 25, 2018 10:08 am

OP,

I appreciate all the things you want to do and when you start cashing your $600k-$1mil paycheck you are certainly free to support your family if you so desire.

I would be very weary of setting a precedent of you paying for everyone. Covering tuition soon will become helping so and so get an apartment and a car and then sending them some money to help them get started.

That said, this is all beside the point. You currently have no money and are unable to help. I would suggest your siblings take out loans and once you have the income you say you will have you can pay the loan for them if you choose. That seems to me to be the cleanest option.

Regarding your debt, again, I would pay in full. It’s not that much debt and it will be a pittance compared to your new income. Best of luck.

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Pajamas
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by Pajamas » Mon Jun 25, 2018 10:59 am

You should know that a credit check is now frequently part of a pre-employment screening process although I don't know if it would apply to your particular situation.

ft2010
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Re: Cash Out Retirement Account vs Rollover to IRA

Post by ft2010 » Mon Jun 25, 2018 4:00 pm

Your consumer debt is rather small compared with your anticipated future earning potential. To me it would also be a matter of pricinple to demonstrate learning past mistakes and paying debts. For these two reasons, I would suggest you stop thinking about taking an easy way out and settling this debt with credit card companies.

I think most people would be forgiving to folks who have no alternative and burdened by insumountable debts due to medical bills or hardship; regular consumer debt, not so much. Remember, you are, or will be, in a highly regarded profession, thus, be mindful of your images and financial characterists and standing (not necessary judged by a credit score alone).

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