What you can do is find another entity (bank, credit union, some insurance companies, etc.) that offers financial services and different financial accounts.

You would specify to your current administrator that so much is being taken out and so much is going into a new account. The money will then be split--some directly to you that will be taxed, and the rest into the new account. The money that is going straight into the new account will not be taxed.

If you take out the entire amount, and allocate the money yourself, expect to be taxed again on it when you take it out.

So, in order to avoid the tax on the amount of money you plan to use for investment, the administrator needs to be told where to put the money, and the administrator transfers the funds without it having to go through you.

A better decision would be to do a loan on your 401k. This will only work if you are still employed with the company where the 401k is in place. When you leave your employer the amount of the loan must be repaid immediately or it will be treated as income and you will have to pay the 20% penalty for early widthdrawl. However, you said you were 60 years old so you may not have to pay a penalty. The advantage of the loan is that the balance that you do not take out is not subject to the penalty and can be rolled over to another IRA or 401k plan. You could also leave it where it is. This would be the smarter move to do. That is if you really really need the loan. Taking money from your 401k when you are so close to retirement is not a wise decision. I applaud you for wanting to take a new road but you should make sure you have no other options for paying down the debt or find what you can live without and make a plan for repayment. If you have no other option then the loan is absolutely the best avenue for you. Why pay a 20% penalty on money you don't need right now? Save that for your future.

The 401K that I currently have is with a former employee so I am not eligible to take out the loan. Thank you though these comments are very helpful

I hear you asking to take part of the balance to pay bills and roll part over to a new account that avoids taxation. This is very possible.

When you request your distribution, make sure that you have the portion that you want to avoid paying taxes on be made payable directly to the rollover institution. This way, there will be no withholding nor taxation. The amount that you want paid directly to you will have withholding and be taxed, but since you are over 59.5 you won't pay an additional penalty on it.

Before you request this rollover, set up an IRA with another institution and get the rollover deposit information from them so it is ready when you get your rollover check.

The one part about your comments that will be a problem is where you indicated you want the rollover amount to be accessible without being taxed again. The fact is, when you take the distribution, whether from the current plan or from the IRA you will be taxed. There is no way around that. If you just meant you don't want to be double taxed for it then rolling into an IRA and distributing from that later on will do the trick, since the IRA rollover will be a tax free transaction.

I hope this helps. The bottom line is you pay taxes on distributions from a plan whether it is direct from the current plan or from the IRA that you rollover the funds to. The decision you have to make today is how much you want to pay taxes on now (through a distribution to you) and how much you want to continue to defer taxes on (the amount you rollover).

Good luck!

I was somewhat forced into early retirement and knew nothing about how to handle my 401 retirement money that I had in a fund set up by the company i worked for.
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I would recommend you do what I did. I went to two banks BOA which I had and Wachovia. They both have financial advisors that will make recommendations based on your specific needs and there is no charge. They will always ask upfront how much you have in your 401, because where you finally decide to place your money… they will get some of it as a fee on a quarterly basis.


Once you decide which one or both that you want to deal with.


You can then have the manager of your 401 fund send you a check for the entire amount and you can self-manage your own 401, buy putting some into eligible retirement funds. It only becomes taxable income at this point if you keep any of it rather than rolling it all over into an eligible fund.


SHORT TERM:
I originally put a percentage into CD’s, which are eligible retirement funds that are not taxable. Each year I draw a set amount out to help with my rising expenses… and put some aside for major items like a new or newer vehicle, appliances and so on. Bank advisors don't make anything off of CD's, but their bank does.


KNOW YOUR TAX SCALE:
Talk with the bank and or your tax preparer letting them know that you want to know the tax based on income you have and how much you would like to withdraw now and in the future years. This will tell you how much you may consider drawing out each year. I found that by cutting back just $400 dollars I didn’t have to pay any Fed taxes and little State taxes. $400 to $800 more took me loser to $1000 in taxes. We had everything paid off, so we didn't need muct to live on.


LONG TERM:
Part of the money went into a Mutual fund like with Harford or Metropolitan for longer term investment of 5 to 7 years that are usually required, unless you want to pay a penalty for early withdrawal.

These have some very interesting variables and your advisors will discuss them with you.

This is where they make their money and it is usually the same no matter who you are letting advising you on your retirement funds. What you need to look at is what the insurance payoff if you die. Sometimes it is just better to buy a life insurance policy; some will grow the value of the payoff beyond the face value. This can get quite detailed and a good advisor will tell you all the risks. My mutual funds have matured after five years and I can withdraw and move all of it into something less risky if needed. I was guaranteed that I would not lose my original investment, but my insurance never grew either. I’m keeping where it is, because it is in a fluid state. All these things will be discussed with you I am only mentioning them now so you will be aware of these options.

Two things you need to know and do. How much is in your 401 and set up a meeting with some financial advisors.

It would also be nice to know if the company or other companies you worked for has anything for you. My last company had stock options for me to cash in. I didn't even know this. there is another company I worked at years ago that was bought out and they had some money for me. The SS office may be able to help you, even though you are not yet collecting SS. The big issue was health insurance.