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LEARN MORE ABOUT: 401k Plans
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HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
I Accidentally Cashed Out My 401k
Accidentally cashing out your 401k can be a major financial mistake that can have serious long-term consequences. A 401k is a retirement savings account that many employers offer to their employees as a way to save for retirement. The money in a 401k is typically invested in the stock market and grows over time, providing a secure financial cushion for retirement.
However, if you accidentally cash out your 401k, you may face hefty taxes and penalties that can significantly impact your financial future. Cashing out a 401k before retirement age (usually 59 1/2) can trigger a 10% early withdrawal penalty on top of regular income taxes. This means that you could end up losing a substantial portion of your savings to taxes and penalties.
There are several reasons why someone might accidentally cash out their 401k. It could happen if you mistakenly request a withdrawal or if you change employers and forget to roll over your 401k into a new retirement account. Regardless of the reason, it’s important to take immediate action to minimize the financial damage.
If you have accidentally cashed out your 401k, here are some steps you can take to mitigate the impact:
1. Contact your retirement plan administrator: If you realize that you have accidentally cashed out your 401k, contact your retirement plan administrator immediately. They may be able to stop the distribution if it has not yet been processed.
2. Roll over the funds: If the distribution has already been processed, consider rolling over the funds into a new retirement account as soon as possible. This will help you avoid taxes and penalties and preserve your retirement savings.
3. Consult with a financial advisor: A financial advisor can provide guidance on how to handle the situation and help you create a plan to recover from the mistake. They can also help you understand the tax implications and potential consequences of cashing out your 401k.
4. Consider other options: If you are facing financial difficulties and need to access your retirement savings, consider other options such as taking out a loan from your 401k or exploring other sources of funding.
Accidentally cashing out your 401k can be a costly mistake, but it’s not the end of the world. By taking immediate action and seeking professional advice, you can minimize the financial impact and start rebuilding your retirement savings. Remember to always carefully review any financial transactions before proceeding to avoid similar mistakes in the future.
This happened to me 25 years ago. I'd left my first employer 4 1/2 years before, but since I'd been there almost 6 years, my pension money (pension no matching back then), worth almost $4K, was cashed out because I'd ignored (but kept unread) mail from the employer a few months before. I almost ignored the next mail from the employer, which was a check for roughly $3200 ($4K – 20%). In order to avoid the tax penalty, I had to put that check into my IRA, which I'd already set up with an advisor for $ from that job & a couple other places. To get out of it, I also had to pay the ~$800 out of my own pocket, put that also into the IRA, then declare the full $4K on my taxes the next year, at which time I got that money back. Fortunately it was much less than the ~$37K that the caller had cashed out.
If I were in that situation today, too late to avoid the penalty, I'd put the checks into my Roth IRA, at least avoiding paying any more tax on it.
For those still watching this video years later, while embarrassing to watch because I can't believe I made such a stupid mistake I will say this call changed my life. I did call a smartvestor and we were able to void the checks and re-issue and complete the rollover without penalty or tax implications. After this experience I went through the Ramsey financial master coaching curriculum to help others the way so many helped me. I also became securities licensed and a legal fiduciary / Ramsey smartvestor pro since 2018. My household has also paid off 100k in debt in 7 years through the baby steps. People make mistakes, its about how you respond to them! Thanks for watching and commenting.
there are so many incompetent people on this planet.
You accidentally cashed out your 401k, then you accidentally got “taxed”. Dave is correct, “…a major error”.
Caller is giddy over this!