Dear Dr. Don,
I lost my job at end of March and I have to decide both what to do with my 401(k) and my lump-sum retirement money.

Several years back, we had to decide between two plans for retirement — one was getting the money at 65 (or whenever you retire) and the other was taking a lump sum at the time you leave the company.

Since I had not been there very long, I decided to take the lump sum, which I will get when my severance runs out.

The company just tells you your job is done and then sets you loose. I have no idea what to do with this money or the 401(k). I want to take the money from both to live on for the next couple of years and just raise my 2-year-old daughter.

I don’t need all the money at once and want to do some short-term investing to try and regain some of the money back that the IRS is going to take in penalty. I don’t care as much about the tax that will be taken because that would be taken anyway when I am old (if I make it to old age).

All this stuff is driving me crazy! Thank you in advance for your advice, but please don’t say, “Don’t cash out your 401(k).” Everyone says that, but the fact is that I could die tomorrow or next year and never see that money.

This is my last child and I missed my other children growing up because of school and work. Life is precious and I have been given a gift.
— Tracee Tapper

Dear Tracee,
I understand your points about being there for your child and that life is uncertain. But I’m not going to be the person to validate your decision to spend your retirement savings like there’s no tomorrow.

That said, there are ways to manage these accounts to minimize the tax impact while taking early distributions. For example, annuitizing the payments over your lifetime under a 72(t) distribution is one way to avoid the penalty tax when taking distributions from a traditional IRA account.

Your 401(k) account can be rolled over into a traditional IRA account. It’s likely that your lump-sum retirement benefit can be rolled over as well, but I don’t know enough about the plan or your particulars to give you that advice.

You should talk to a financial planning professional about your options to spend down the accounts while minimizing the tax impact. I recommend a fee-only financial planner. The National Association of Personal Financial Advisors can help you find a fee-only planner in your area.

Bankrate also has a tool to help you find a Certified Financial Planner, although this list is not restricted to fee-only planners.

Investing the money with an eye toward recouping the income tax “haircut” over the short term is likely to be a mistake. You want the money now, so you pay a price to get the money now. Swing for the fences and you’re likely to strike out.