Published: Sunday, March 13, 2011
Leave 401(k) alone, even if you're jobless
ORLANDO, Fla. -- During his 25 years as a boat builder, Tim Parker had done everything right financially: contributing to his 401(k) retirement plan, paying off his mortgage and credit-card debt, living on a tight budget and saving money for a rainy day.
Then, unexpectedly, he was unemployed, working part-time jobs to make ends meet, and finally going back to school to prepare for a new career.
"I was just devastated. I really felt the rug had been pulled out from under me," said Parker, 50, who was laid off nearly two years ago.
Parker is like millions nationwide still unemployed as a result of the Great Recession and trying to keep their finances on track amid another "jobless recovery." Many have lost their homes and savings in the economic turmoil, but others have navigated it pretty well so far.
It helps, experts say, if your financial house was in order before landing in the unemployment line. Parker, for example, was well-positioned for handling adversity, according to Charlie Fitzgerald, an Orlando financial planner who advised Parker after he was laid off.
"Tim was way ahead of the curve," Fitzgerald said.
As unemployed workers review their finances, the biggest asset on this list -- even for homeowners, if the housing slump has left them underwater with their mortgage -- is often a 401(k) retirement account.
The cardinal rule, financial advisers say, is to keep that money intact, no matter how tempting it may be to tap it. Any money you take out of a 401(k) before age 59½ is subject to a 10 percent federal penalty -- as well as federal income tax. (The exception to this rule: If you were 55 or older in the year you were laid off, you're exempt from the penalty.)
Laid-off workers may keep their money in their ex-employer's 401(k) plan or roll it over into an individual retirement account, or IRA, under government rules. Advisers say that, if the 401(k) is a good plan, with low expenses and solidly performing funds, you should consider standing pat.
Workers who lose their jobs should adjust the asset allocation of their retirement plans and investment accounts -- that is, the mix of fund types they have chosen for their money -- to reduce the overall riskiness of their holdings while they are unemployed, said Jason Chepenik, managing partner of Chepenik Financial.
Then, unexpectedly, he was unemployed, working part-time jobs to make ends meet, and finally going back to school to prepare for a new career.
"I was just devastated. I really felt the rug had been pulled out from under me," said Parker, 50, who was laid off nearly two years ago.
Parker is like millions nationwide still unemployed as a result of the Great Recession and trying to keep their finances on track amid another "jobless recovery." Many have lost their homes and savings in the economic turmoil, but others have navigated it pretty well so far.
It helps, experts say, if your financial house was in order before landing in the unemployment line. Parker, for example, was well-positioned for handling adversity, according to Charlie Fitzgerald, an Orlando financial planner who advised Parker after he was laid off.
"Tim was way ahead of the curve," Fitzgerald said.
As unemployed workers review their finances, the biggest asset on this list -- even for homeowners, if the housing slump has left them underwater with their mortgage -- is often a 401(k) retirement account.
The cardinal rule, financial advisers say, is to keep that money intact, no matter how tempting it may be to tap it. Any money you take out of a 401(k) before age 59½ is subject to a 10 percent federal penalty -- as well as federal income tax. (The exception to this rule: If you were 55 or older in the year you were laid off, you're exempt from the penalty.)
Laid-off workers may keep their money in their ex-employer's 401(k) plan or roll it over into an individual retirement account, or IRA, under government rules. Advisers say that, if the 401(k) is a good plan, with low expenses and solidly performing funds, you should consider standing pat.
Workers who lose their jobs should adjust the asset allocation of their retirement plans and investment accounts -- that is, the mix of fund types they have chosen for their money -- to reduce the overall riskiness of their holdings while they are unemployed, said Jason Chepenik, managing partner of Chepenik Financial.
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