Roll It, Don't Receive It
Mike made a bad decision on how to pay off his credit card debt. But is it too late to undo it?
QUESTION: Mike was just laid off, and has 10 months of expenses saved. He has a credit card with $26,000 on it and, in a knee-jerk reaction, cashed out a smaller 401k about 5 days ago to pay it off. Dave warns him of the consequences of that and tells him how to avoid them.
ANSWER: If you haven’t used the money and it’s still in transit, see if you can cancel it. If you can’t, as soon as you get it, do a direct transfer rollover to an IRA so you won’t get killed on taxes. You’re going to get hit with a 10% penalty plus your tax rate. The government’s going to hit you for 40 cents on the dollar. This is brain damage; you don’t want to do this.