Need help with taxes on 401K Cash In

What is the name of your state?
Missouri

Hi. Don't know if this is the right forum, but will give it a shot.

The company I worked for filed bankruptcy in 2002. I got to keep the money I put into my 401K, but since it was matched in stock, well, you get it; that's all I got back, what I put in.

It wasn't a lot of money, and I rolled it over to Mass Mutual, not touching any of it. However, I have lost over a $1000 of what I put in two years ago, and my last quarter's statement (end of Sept) says I lost another $200, and I called yesterday and just since Sept, I lost another $60!

So, I am considering cashing it all in; re-investing some, and using some for home improvements.

The Mass Mutual person said 10% comes off the top, but what are my ramifications on my taxes for 2004 if I cash it in? How much more will I have to pay on it? Any other suggestions on what to do with this, since I keep LOSING money where it is?

Any help is appreciated.

Thanks. sonza

[abezon]

You will pay a penalty of 10% for any money you withdraw and do not roll over into another IRA. The full amount you keep out will also be added to your taxable income in the year of withdrawal. You will also pay state income taxes on the withdrawal, and there may be a state penalty too.

Since your main concern seems to be that the investment is not doing well, you could do a trustee to trustee rollover and move your IRA into another IRA with different investments. Talk to some financial advisors (at least 3) and pick the one you're most comfortable with. The advisor will have the forms for you to direct the rollover. As you already know, rollovers are not taxable.