Lump Sum or Retirement Roll Over

[Cypress]

I have been working for a municipality for one year and 3 months. There is a weekly deduction into the state pension fund which has accumulated to $3300. I have accepted an offer on a job that will move me back into a private institution. The move salary wise is horizontal. The pension plan allows me to roll the accumulated dollars into an IRA which I have set up and can do. The other alternative is lump sum less 20% to federal tax.

I have several immediate needs for cash. My bed frame gave a loud large crack last night and part of the bed sagged. As it was the middle of the night, I just slept on the other side and will check this later tonight. From the sound of things, the wood frame cracked vertically. This is a futon frame that can be used as a couch or a full size bed.

I am also due for a major tune up on the car. I assume that will go well as I take good care of the car. It needs new hubcaps as mine were stolen within the last few months. I know it needs brake work, it’s time for the $30K maintenance. I might need new tires all around.

I also need a new shed.



The whole dollar number would be around $2660 with that I could certainly take care of the bed, car and some of the shed. My emergency fund is full at $1K and I have a house fund with a current balance of $600. I will not touch savings for any of this. The alternative is to save up for each situation which will take some time. If the frame is cracked I can put the mattress on the floor and make do.



What would you do?

[herbgeek]

One thing you might also want to consider is if this extra cash will change your tax bracket at all. The money may not be as attractive for spending if you have to give a larger share of it over to the government. Also, depending on your tax bracket, the 20% for withholding may not be enough and you'll need to come up with additional cash come next tax year, or keep some of the money set aside for this.

Congrats on the new position!

[chanterelle]

Roll it over and forget about it as a ready cash source.
Taking a 20% tax hit on this money is the same as taking money from a savings account making 20% in interest. I doubt that your EF or savings are making anywhere near that ammount. You end up short changing your future as well as your immediate finances.
EF's are for things like car breaks and tune ups...these are important safety issues and maintain your investement in the vehicle. Sheds, hubcaps , even beds are things you save up for out side of the EF. If it seems like it takes a while to save for these transitory items, think how much longer it will take to save for a stable future if you nibble away at those funds now..

[freein05]

Roll it over and forget about it as a ready cash source.
Taking a 20% tax hit on this money is the same as taking money from a savings account making 20% in interest. I doubt that your EF or savings are making anywhere near that ammount. You end up short changing your future as well as your immediate finances.
EF's are for things like car breaks and tune ups...these are important safety issues and maintain your investement in the vehicle. Sheds, hubcaps , even beds are things you save up for out side of the EF. If it seems like it takes a while to save for these transitory items, think how much longer it will take to save for a stable future if you nibble away at those funds now..

Very good answer and I agree 100%. You need save for your retirement years and the best time to start is now.

[Cypress]

I checked with the payroll person here and I have $3,400 in pension funds. I also walked over to check on cost for a new mattress and so have started to understand the potential investment in me.

[jennipurrr]

Honestly, and I am sorry if I being a bit blunt, but it sounds like this money is just burning a hole in your pocket.

The most financially advantageous thing to do with the money by far is to move it over to an IRA. It should be free to do this somewhere like Fidelity or Vanguard (not sure if you have enough for Vanguard, but I think Fidelty only requires $2000). You are likely going to have a 10% PENALTY AND TAXES at whatever marginal tax bracket it pushes you into for cashing out the pension - http://taxes.about.com/od/Federal-Income-Taxes/qt/Tax-Rates-For-The-2011-Tax-Year.htm Congrats on the new job - what are your retirement options? It sounds like you are going to have to be more responsible for your own retirement since you are no longer working in the public sector. Do you have other retirement accounts? I would not cash out this if it is all the savings you have in the world for retirement, especially sing you are buying nonessentials (and by nonessentials I mean anything except to keep a roof over your head, food or medical emergency). It may seem convenient to cash out the account, but you are robbing your future earnings and security later on.

Regarding the stuff purchases...none of it is life or death. I would make a priority list of what you need and the cost, then save up for it. $100/mo goes a long way to buying all those things. Personally, I would put my mattress on the floor until I could outright pay for a new one. I bought a queen mattress from Sears Outlet that had been a floor model - total cost otd $127. I've also bought numerous used mattresses and bedroom sets for my furnished rentals which were also dirt cheap. Check out your local craiglist, and also many places now have local garage sale groups on facebook. Probably good places to find a shed too.

I am not a "car person" but your car stuff made me wonder. My cars have alloy wheels so I am totally out of the hubcap loop, but how much do hubcaps cost? It can't be more than $100 can it? Do you have to do the 30,000 maintenance to keep your warranty? What are you planning to have done? Most cars nowadays don't really require a tune up I think. I have only taken my car in for work when it is having problems or when the manual or light says I need something done. I would look at your manual and see when it truly needs servicing - just because the dealer sent a flyer out doesn't mean anything. I would not go to the dealer for brakes/tires/tune up if I could help it.

Just my thoughts, good luck with whatever you decide!

[loosechickens]

Boy, you ought to KNOW what advice you'd get from US!!!!. Of COURSE, leave that money alone, roll it over into your IRA, put the mattress on the floor, save up and do those things as you are able, and let your retirement money alone to grow.

Those few thousands will have grown to quite a few thousands by retirement age, and the stuff you WOULD have spent the money on will probably by then have ended up in thrift stores or landfills.

NEVER, NEVER, NEVER....if there is ANY way to do it some other way, take that pension or IRA money when you leave a job and spend it. ALWAYS roll it over if it is humanly possible. You're going to need that money a lot more later in life, and allowing it to grow for a number of years will make life much easier then, than spending it now would.

JMHO........

[Bronxboy]

On the Futon: If it is real wood, just glue it back together. Even though they seem worse, cracks parallel to the length of the board are easier to fix because there is surface area.

Hold with a couple of clamps until the wood dries or use a wood reinforcement. Elmer's carpenter's wood glue or Gorilla Glue is fine.

http://tlc.howstuffworks.com/home/how-to-repair-wooden-furniture2.htm

Structural repairs described near the bottom.

[jp1]

Another entry on the side of rolling it over. I don't know your age but if you're younger then 59 1/2 there will probably also be a 10% penalty for withdrawing retirement funds before retirement age. This would bring the amount lost up to $1,000.

[frugal-one]

Ditto for rolling the money over into an IRA!

[RosieTR]

In our neighborhood in Phoenix, there was a little old couple who would be there every time it was trash or recycle day, going through people's trash and recycles to find aluminum cans to recycle. They must have been in at least their late 60s but more likely 70s or older. No matter what the weather, they were there. They wouldn't speak to me in English or Spanish, so I don't know for sure what their situation was other than that they were old and appeared to need the cans for money. Every single time I saw them I wondered how many people would save more for retirement if they saw these poor folks as a preview of their "golden years". You really want to be digging cans out of the trash in the rain or snow or heat or wind when you're 75? Roll the $ into an IRA and sleep on the floor. It'll feel a lot better now than when you're in your 70s.

[Simplemind]

Do you have to take it out? In our system you can leave it there until you are retirement age.

[sweetana3]

I am retired and was not going to respond since I agree with all the other posters. However, I wanted to say that my biggest regret was not starting earlier and working out a lifetime plan for all aspects of my life in my 20s or even teens.

We did use the theory that there should be balance in all things and did have buckets for things like travel and such. But if we had not waited until we were in our 30s to sort out finances and plan for retirement, we would be farther ahead.

Your emergency fund is not enough for today. I think your whole budget needs to be reviewed with an eye to the future as well as today.

[Cypress]

I drive a Toyota Corolla, 2006 coming up on 30K mile maintenance which advises to check on the condition of the brakes. The change of jobs has the bonus of bringing me nearer to the mechanic I patronised for more than 10 years. I am completely consumer satisfied that I will get the best service for the best price and not have to worry. I tried to find off market hubcaps or buy alternatives but neither fit or couldn't find a set. The dealer will be happy to sell me new ones for $30 to $50 each, that is why all four where stolen. This mechanic may have another idea on how to approach this. The car looks like a rent a wreck without the caps. Small but a daily eyesore for me.

The futon frame is designed to also be a sofa. The part that broke is right in the middle, the sofa portion of the wood. it split clean. The wood is basic pine. The seated portion of the futon frame is a lot sturdier than the upper portion. I've had it for 5 years now. Yes, I put the mattress on the floor. The cats thought that was a bit odd. I am 51 years old in fine health. The mattress is lumpier than I thought. I suppose it is the best motivation to save.

It's just convenient that I am moving on from my job and have this opportunity. I know what is the smarter thing to do, but I need to be reminded why.

[jennipurrr]

I meant to post the Sears Outlet link my post, its pretty self explanatory though, http://www.searsoutlet.com/ If anyone is interested you can go to select store, put in your zip code and then select the stores near you, then click on the store location and view store inventory. When I have an appliance in my rentals that is nearing end of life I try to stalk this website, they have crazy deals on returned items and closeouts that are often not market in the store. When mattresses are returned to a Sears that doesn't normally sell them they are often dirt cheap. Some stuff is marked high and eventually goes down in price. Just thought I would share in case OP or anyone can use it. OP, I think I have even seen a futon on there!

[Cypress]

You'll be happy to know I have signed off on the paperwork to roll the funds into an active IRA. There is a smaller windfall coming from sick time and vacation time payout when I leave. Due to good health I will be able to buy back unused sick time up to 28 days. In total, the payout will be around $940. I may get that new mattress after all with the balance to rainy day funds. My auto insurance is due at the end of February. I might just pay that in full and reap the 5% savings if I do. My rate was greatly reduced this year due to good driver returns.I have to think this out.

So, I may have some tendencies to break out of frugality and do the right thing, but overall, I am doing the best I can with my few buckaroo's.

[RosieTR]

Good for you, Cypress!!! It stinks to wait for stuff that grates on you every day but you'll be able to save up the $ soon enough.

[lhamo]

Well done on the rollover!

lhamo

[jennipurrr]

That is great to hear! I'm glad it worked out so you can get the mattress and do the rollover.

[ljevtich]

good to hear you will roll over the money.

I would also suggest checking out your local Salvation Army store. They usually sell beds or futons or whatever. I know they sell mattress/ box springs, we got new queen sized ones (with the tags still on them & in plastic!) for ~ $200 for the in-laws.