San Diego Housing Market News and Analysis

You still need to retire someday, right?

I would roll it to a self directed IRA and let it grow towards retirement.

I'm funny that way.

ditto UCGal

Put the money in something safe like Vanguard Wellington VWELX and forget about it.

Is that $12,000 all your retirement savings ?

Imagine yourself nearing retirement.
In 25 or 30 years, that could be ~ 50K (assuming reasonable, not excessive returns).

Wouldn't you rather have those funds for maybe a few months of food and property tax, so that you can remain in the home you are currently paying PMI on.

On the other hand, if you are in a position where you could eliminate PMI by using these funds to pay down principal, that could work, assuming that you pay yorself back by funding an IRA for the next couple opf years.

Of course, you will be taxed at your income tax rate plus a 10% pentaly, so you might only end up with $9K or so to spend (if you are in a marginal 15% tax bracket)

It could be worth it to consult a tax professional. Or not, because the advice might only save you a few hundred bucks at the most. Or you could take the advice of some unknown blogger.

My first recommendation would be to roll it over into an IRA if you can. Saving PMI is a good thing, but if you're like most people, you're NOT going to actually set that money aside, so your retirement savings just went up in smoke. Also, depending on your tax bracket, taxes could easily eat up 45% of it. (28% fed, 10% penalty plus state taxes.) And it depends on what state you moved to. California has a high top rate, but pretty low rates for lower income. Some states don't tax pensions. Some states have no income tax. California also has a 2 1/2% penalty like the fed 10% penalty. Someone is probably gonna pipe in here that since you don't live in California anymore, then California taxes aren't an issue. But they are. You saved taxes when you lived in California, so California wants their share when you take the money out of the qualified plan. As a practical matter, they might not track you down (though I have seen it happen). If you roll it over, and stay out of state, it's highly unlikely they'll ever get their share. But if you take the distribution (specially if it's directly from CalPERS) in a year you file a part-year resident resident return (assuming you moved this calendar year), they're gonna know it's subject to CA tax. So if you decide to take the money out, it probably would be a good idea to first roll it over into an IRA this calendar year, and then take the distribution in a future year when you no longer have to file a CA return.