How do you take a 401k and buy stocks with it with out paying penalties?

Question

How do you take a 401k and buy stocks with it with out paying penalties?

Answer 1

Once you leave the company, you can roll over your 401(k) account into an IRA at a brokerage or at a mutual fund company that also offers brokerage accounts (all the majors do).  

While your money is still in a 401(k) plan, you can only buy stocks if your plan includes a brokerage account as an investment option.  Many plans do, although these options are under-utilized.  If your company does not offer this in their plan suggest it, and if nothing changes, look for this feature when you are out looking for your next job.

Answer 2

Move the 401K into a self directed IRA.  I use TD Ameritrade.  Once you are in a TD Ameritrade IRA you can buy stocks, or bonds, or gold or mutual funds or money market fund.  

There is no penalty when moving it to another IRA.  Or you can pay the capital gains and move it into a Roth IRA.

You can do the same thing with Scott trade.

But if you have left your company I would get that money out of their hands ASAP.

Answer 3

If you are no longer working for the company, roll the 401K over into a self directed IRA.  If you are still working there, you probably can't.

Answer 4

It has to be a self-directed brokerage account within the 401(k).  You can only do so if your employer's plan so allows.

Answer 5

Well, it depends a few things: how much you plan on rolling over to stock, your age, and how long you have been with the company...

If you are older then 59 1/2 its easy to move it...The best option would be to rollover your 401k to a IRA because there will be no tax penalty until you take it out (so it can grow tax free), and since you are close to retirement or are retired you would want to be more preservative, less risky. Or you could take it out and only pay taxes based off of the tax bracket you are in and reinvest it in a mutual fund or a simple retail broker account.

If you under 59 1/2 its a bit harder...

you could take it all out but you face normal tax (and I would assume you are in at a lot higher tax bracket then you were right out of college and the closer you are to retirement, theoretically, the higher tax bracket you will be in because you are making more; again theoretically) AND a 10% penalty.

From here if you are under  you have many paths..

If you wish to place PART of your 401K in a outside account  a IRA would work perfect, the only let down is normally you will not be able to rollover what ever you want--the longer you work for a company and the older you are determines how much you can rollover thus making it are limited. Unless you have retired...all of this doesn't apply.

If you only want part of it transfer and you are under 59 1/2 and you absolutely do not want to put it in a IRA (not recommended if all you want is part of your 401K in stock and you are under 59 1/2), you may take out limited amounts through doing periodic distributions through the 72-T rule. This is rule is better used if you need the money for undying unpredicted situations or early retirement (again although not recommended if in this case).

If you absolutely must take it all out and your under 59 1/2 you will be paying federal and state tax which could be anywhere from 15-36% PLUS a penalty fee for taking it out before age 59 1/2 of 10%. So if you have 100K in your 401K you will only see 54K to 72K of your hard earned money verses just having  the taxes deducted.

For this reason if you are of a younger age you should invest as much as your company will match into your 401K (to get the full match, free money :) ) and then you can put additional money in it; but at least 20 percent of the amount you are putting away should go to a taxable broker account, mutual fund, etc,so if the need arise and you need the money for a house down payment  or plan on retiring before age 59 1/2 you will not get the additional 10 hit.

You could always see a financial adviser and try to have him help you reallocate your 401k...

Hope this helped dude