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Retirement
Planning after a layoff
June 13, 2001: 8:56 a.m. ET

While you look for a new job, roll over that 401(k) and build a safety net
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NEW YORK (CNNfn) - Getting laid off from your job is hard enough, without the stress of wondering how you're going to get your retirement plan on track.

But what if you've got a decent severance package and you've built up a healthy 401(k)? What can you do to make the most of these resources, and is there any way to set aside a little emergency money?

In response to a reader's question, Don Boegel, a certified financial planner in Plymouth, Minn., and a member of the Financial Planning Association, said you can roll over that 401(k) into an IRA. You can also set up a little safety net for yourself by putting any extra income into an easily accessible money market account.

Ask the experts a question.

Question: I'm a 37-year-old unmarried woman and I just got laid off. I received a pretty decent severance package that should last me through the fall. But I'm worried about what to do with my 401(k) and I don't know what to do about retirement savings while I'm unemployed. I have a Roth IRA with $4,000 in it. What are my options? What if I get desperate and need my retirement money?

Answer: You should roll over your 401(k) into a Rollover IRA. This IRA should be kept separate from any you currently have so it can be transferred back into a 401(k) plan should your next employer have one.

While you are looking for your next job, I'd recommend depositing any extra income into a money market account so it is readily available. Until you secure employment, you shouldn't worry about adding additional money to retirement accounts. However, you should do whatever you can to prevent making withdrawals from these accounts.

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If you do get desperate, only the growth portion of your Roth IRA would be subject to income tax and a 10 percent penalty. Any amount withdrawn from a traditional IRA would be subject to income taxes and a 10 percent penalty.

You could avoid the 10 percent penalty on withdrawals if you qualify for one of the hardship provisions (see IRS publication 590), however, that appears to be unlikely given your situation.

Hopefully, between the severance package that you received and any emergency fund that you have established, you won't have to spend from your retirement account. Take a careful look at your expenses to see if you can make any other cutbacks in your spending. graphic

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.