Me, too, and this is how I'd do it. I wouldn't cash out of my 401K while I'm working at my current job because cashing-out means you'd take the penalty hit up front. When you leave a job, your 401K money can go to you directly and you have 100 days to roll it over into a new 401K account. What I would do is NOT roll it over; I'd put it into real estate or stocks or bank accounts of under 10k. I wouldn't report it on my tax return, reasoning that my former employer would report my having cashed it out, so I wouldn't need to report it. If the IRS eventually came after me for the penalty or income tax on it, I'd go to a lawyer and then make a payment plan with the IRS. However, I have heard the IRS often doesn't track the cashed-out 401Ks.
In any case, I no longer trust that the government won't tax/seize 401ks, which, after people turn 70, are not supposed to be taxed. Also, I predict eventually people who are merely middle class won't get social security. So, no social security, and your 401k is taxed — perhaps heavily.
Yes, I'd consider not rolling over my 401k the next time I switch jobs.
When I quit my job, I rolled it over into an IRA where I make my own in testament decisions. Then you are free to invest in those things you mentioned.
> “I have heard the IRS often doesn’t track the cashed-out 401Ks.”
Not exactly right. I cashed out two IRA’s when I quit a job in December several years ago. After I moved to a new job (out of state), I rolled them over at my new location (it was about a week under the time limit). Shortly after April 15th that year, I got a letter from the IRS threatening me for cashing out my IRA’s, not rolling them over, and not paying a huge penalty for keeping the money. I eventually proved to them that I had rolled them over and within the time limit. It took several letters.
So, I would say that they very definitely track when you cash out an IRA. They don’t seem to track when you legally roll them over, however.
Not true.
The IRS tracks this very closely and your plan will result in you needing a lawyer.
The company that holds your IRA does not want trouble with the IRS so they make sure they are covered six ways from Sunday. It is after all, their business. They know all the tricks.
Let me assure you that 401(k) redemptions are one of the easiest things for the IRS to track. When you cash out your 401(k), the administrator of your 401(k) account will file a form with the IRS that reports the exact amount you have cashed out. If you roll it into an IRA it is reported as a tax-exempt rollover on one type of form (a 1099-R, I believe). If you take the money out completely, it is reported as a 401(k) distribution on a different form.
The forms that the administrator files with the IRS have your Social Security number on them, so cross-checking between your tax return and the 401(k) distribution form your plan administrator files is so easy that the IRS uses a computer program to do it.
I believe that anyone with their own retirement accounts will be punished with reduced Social Security payments (this is already done when applying for financial aid for college; those with PARENTS with assets don’t get anything); they will also continue to underreport inflation to stifle cost-of-living increases. They will also continue to raise the age for eligibility (in my case, 67 instead of 65); fewer people will live long enough to collect it.
Raising the minimum wage will also force higher SS contributions (and income and Medicare and unemployment taxes)...
They do. On top of the tax, you will pay interest and probably a failure to pay penalty. Because the offsetting reporting form is generally not issued by the firm that receives your rollover until the next year it might take 2 years, enough to really run up the interest. If it is large enough and you do not pay fast enough you risk a Lien on your property or business.
Roll it over to a Roth IRA or pay the tax upfront and be done with it.