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I’ve received so many fantastic questions lately that I know I will not do them all justice today, but I will give it my best shot! I will also reply to all of the comments individually on the blog, and will reserve some for future posts as they are quite meaty (which is great — I love your questions; please keep ’em coming!).

A quick note on the conference in Austin! There are 600+ extremely smart, driven, passionate, positive people here all excited to make a difference in their own lives and in the lives of others — just the kind of people I like to hang out with! I am learning a ton and have many new ideas to share with you over the coming weeks as our site grows and develops…please stay tuned! And of course if you have any suggestions ever about what you’d like to see or what you think would help you more, please drop me a line and let me know — I love hearing from you!

OK, onto this week’s questions!

First, RC asks, 

KungFu Girl,

This website is wonderful. I just discovered it yesterday and have read almost all of it. There is nothing like this anywhere else. Your positive attitude, enthusiasm, and honesty are really an inspiration.

Here is a topic request. The crux of the problem is working with or around corporate style 401K’s. A prerequisite for this topic would be to read Bill Butler’s short essay on the similarities to funds paid to Roman slaves under what was called peculium at the time. Link here http://www.lewrockwell.com/butler-b/butler-b11.html The synopsis is that the funds belonged to the slave, but the slave did not have control over the funds.

Topic: “401K Asset or Impediment Toward Financial Independence?”

Situation: Mid career employee having approximately $350K under 401K auspices. Extremely limited flexibility. Only mainstream investment choices available. There are other funds saved outside the IRA available for investing or hedging, but gaining control over the 401K pot would more than double the total funds and surely accelerate the path towards financial independence.

Options:

1. Quit job Friday. Move into same type of job but with a different company on Monday. Gain control over 401K in the process.

2. Quit job. Use 401K funds to invest (along with other funds of course) and hope there is enough income to pay expenses. Very risky.

3. Quit job. Use 401K funds to start or purchase a small business. The disadvantage to this option is that running the business would take away from research time needed in learning how to gain financial independence.

4. Keep job. Stop contributing towards 401K, but leaving balance in place. Use any spare cash after expenses to put towards investments outside 401K.

Note that I am aware of what is called the “self directed” IRA; however, this sort of discussion is beyond the scope of the problem. All corporate style IRAs that I have heard of do not allow you to take your funds out unless you quite working or claim some sort of financial hardship.

Additionally I am aware of the borrow against the 401K option, You can borrow up to 50K, but this is only a small consolation.

Hi RC!

Thank you so much for your great (and nice) comment! I’m so glad you’re here and are enjoying the site so far.

YES, I totally agree with you…401k’s suck, to put it bluntly.

I actually wrote a 4-part series a few months ago on “Is your 401k Robbing You Blind”? Here are the links:

401k Part 1 (Fees)
401k Part 2 (Trapped Capital)
401k Part 3 (The Tax Man Cometh)
401k Part 4 (Nationalization)

But I am happy to elaborate on any of them and/or write another article, because I didn’t specifically address your options above (for people with a lot of cash trapped in 401k’s now) and I completely agree with you (and with the great article on Lew Rockwell– thanks for the link!).

I get so angry when Wall St. and/or the government try to “dumb down” us citizens. It is almost like there is a conspiracy (and there probably is…) to make us believe that “we are not smart enough” to possibly figure out “all of this complicated financial stuff” ourselves so that we “need” the government and/or Wall St. to “take care of us” because we can’t possibly do it ourselves! Grrrrr…it makes my blood boil!

Anyway, yes, I’m happy to write an article about the options you list above for those with lots of capital in their 401k’s but who are still happily and gainfully employed (so for those who can’t move to a self-directed IRA and gain control that way).

Off the top of my head….it’s a difficult choice! I honestly don’t know of any other way to gain control over your 401k money other than the options you list, but they all come with various drawbacks as you outlined.

Option 1 would work and you could move to a self-directed IRA but that is a really tough choice if you love your job/co-workers/management/salary/benefits/etc.

Option 2 is risky depending on your level of financial knowledge, especially if you are earning a great income and are happy with your job, although you could make a plan to do this within a certain time period (1 year, 2 years, 5 years) and work on nailing your financial education until then so when you leave you are extremely confident that you can maintain your standard of living (it will be no fun if you can’t sleep at night because you are so stressed out!).

Option 3 is also a possibility, but is extremely dependent on your level of business-savvy and desire….do you want to be a business owner? If so, this is actually a great way to achieve financial independence, but it is not for the faint of heart—you DO get lots of tax breaks, but it is also a ton of work and something to investigate *thoroughly* before taking the plunge (actually this is a topic all by itself!).

Option 4 doesn’t solve your problem of the trapped capital inside the 401k, but yes it definitely gives you more money to invest outside of it (but you also lose your current year tax benefits and any employer “match”, so it is very dependent on your personal situation).

It’s a great topic, and one I will spend more time on as it’s a huge problem today. You really nailed the options above, but I will definitely think on it and see if I can come up with anything else. I wish I had a “get out of 401k free” card for you!
Next, Brandon also asked, RC — Thanks for asking this question, I have been working for about 8 years and it’s frustrating with the lack of control and options in my 401k plan too. I really want control but like you said the available options to fully control our money is pretty limited. I am looking forward to hearing what kung fu girl has to say about this.  Brandon

Thanks Brandon! I answered RC above, but yes, it’s a very frustrating situation. 401k’s suck. They really do. I have never ever met a truly wealthy person who when asked, “how did you become wealthy?” or “how did you become financially independent?” answered, “Oh, I just contributed to my 401k!”. Never.

I agree with the Lew Rockwell article RC posted above…401k’s are “average” products/vehicles created by Wall St. and the government to enrich their pockets; not ours. And corporations gleefully seized the opportunity to provide these “plans” instead of the former defined-benefit plans that used to guarantee you a monthly pension for as long as you lived but were much more expensive for corporations to provide.

I don’t mean to rant but I fully agree…401k’s suck!

But what to do about it is difficult, and highly dependent on your own personal situation, expertise, experience, desires, etc.

I wish I had a better answer for you! There is no easy or “one size fits all” solution. I will think on it and write a post on it soon — it’s obviously a hot topic for a lot of people.