Dave Ramsey: Moving jobs? Roll your 401(k) into an IRA

Dear Dave,

How should I handle my 401(k) when moving from one job to another?

— Tracy

Dear Tracy,

I would roll it to an IRA. Your new company, if you move it there, will have limited choices for your 401(k). You’d also probably have a lengthy waiting period for verification and the potential add-on fees and taxes.

Plus, with an IRA, you can cash it out if something really bad happens. But I rarely ever advise people to cash out their IRAs. The only exceptions are extreme cases, like to avoid bankruptcy or foreclosure. Even then, hardship withdrawals are very difficult to get. And again, this kind of thing should never be done except in an absolute worst-case scenario.

Just roll your money into a traditional IRA, Tracy. It’s called a direct transfer IRA, and that way there will be no taxes on it. You want the money to go directly from the 401(k) to the IRA. Then, you’ll have the freedom to choose from about 8,000 mutual funds and move the money around if you like.

In other words, you’re in control. That’s the way it should be when it comes to your money.

— Dave

Dear Dave,

We have three children, ages 15, 10 and 9. With our oldest starting high school and just being a teenager, we’re spending lots more money on her than on the others. It’s almost like she’s the favorite child. Should we spend more on the other kids to make things seem a little more fair?

— Julie

Dear Julie,

I don’t think so. In five or six years, it’ll be their turn, and you will be spending that kind of money on them, too. That’s the way it is with teens.

Here’s a question for you. When the 15-year-old is 23 and you’re buying prom dresses and all the other teenage stuff for the younger kids, are you going to turn around and give the older child extra money just to “even things up”? Of course not — that would be silly. She had her moment in the sun, and now it’s their turn.

Just make sure you hug all of them equally, and let them know you love them.

— Dave

Dear Dave,

Would it be OK to go on a 10th-anniversary honeymoon while we’re working on our debt snowball?

— Karen

Dear Karen,

I don’t think so. I mean, it’s not against the law or anything like that. I just don’t think it’s a good idea. I wouldn’t do it, and I wouldn’t suggest taking the trip then rolling it into your debt snowball either. I know this probably sounds mean, but I’m just not a big romantic when it comes to people who are deeply in debt.

A rare exception may be a situation where you have a really small debt snowball and a nice, fat income. But most people in your shoes have average incomes and mountains of debt. On top of that, they want to take a big celebration vacation? I would say no.

At some point you have to stop the spending and concentrate on getting your finances in order. Besides, you’ve got a lifetime together to take romantic vacations and celebrate your marriage. Just wait until you can afford something like that. Trust me, you’ll enjoy it even more.

— Dave

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