IRA vs. 401k Withdrawals

recently discovered something when transitioning jobs – should you need, or desire, to pull out some money from your retirement savings there is a BIG difference between an IRA and a 401k.  With a 401k, they are REQUIRED to withhold 20% Federal Tax.  However, if you roll over the funds in your 401k TO AN IRA and then request a withdrawal, they are NOT mandated to withhold the 20% Federal Tax.  That is a choice you can make for yourself.

In my case, by r0lling over to an IRA and then requesting a withdrawal, I was able to save around $1,800 in mandatory tax because I withdrew money.  PLUS, when I repay my “loan” within 60 days, by re-depositing the funds to my IRA, there is no Federal Tax penalty involved.  It’s as if the “loan”  never occurred.

The folks at Fidelity, who recommended and handled my rollover clued me in to a HUGE savings.  Perhaps they can do the same for you when the time comes.

Also, I’d like to pint out that the IRA offers much more flexibility in the investment vehicles offered.