The San Diego Union Tribune reported on September 20 that SAIC would be laying off 89 workers on November 1, 2008. If you are among those 89 workers, you have several forward-looking decisions to make, one of which is what to do with your retirement money you accumulated while at SAIC.

In a down economy and with San Diego County’s unemployment rate having gone from 4.8% to 6.5% in the past  year, you might be tempted to do a bad thing – simply cash out your 401(k) plan and bite the bullet on the taxes. Bad idea. First, you probably don’t realize the magnitude of those taxes. You will need to take your income tax bracket for your income this year and apply it to every dollar coming out of your 401(k). Lets say you are in the 28% bracket. Then you will pay a Federal penalty for early withdrawal (this assumes you are younger than 59 1/2) of 10% – now you are at 38% of the funds going to taxes. But wait, you aren’t done yet. There is also a California income tax to consider of at least 6%, taking you to 44%. And then there is the California Penalty for early withdrawal of 2.5%. Now you are at a whopping 46.5% of the funds you take from your retirement plan going to State and Federal taxes.

So, I think you can see that taking these funds without trying every other option available to you just isn’t a good idea. It will take you years to make up for the loss – and the truth is that you will never make up for it since you will have lost the time value of those dollars that are no longer invested on your behalf. For the sake of your long term financial well-being, make it your place of LAST RESORT to go for money to make it on to the next profitable job. Afterall, it may be just around the corner. You just don’t know right now.

It would be much more prudent to do a Direct Rollover of your retirement funds to a Traditional IRA and aviod any income tax consequences. Once this is done, you have complete control of your retirement dollars. If you do eventually find that you have to take some of those funds early and pay the penalties, you can only take what you absolutely have to take. You won’t be restricted by the withdrawal rules of the employer’s plan.

If you don’t know how to get that done efficiently and with little cost, you can contact me at

Charles L. Stanley CFP® ChFC AIF®
Oncubic LLC
3655 Nobel Drive Ste 340
La Jolla CA 92122
Telephone: 888-619-5666 x506