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Author: Dominyon Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19371  
Subject: 401 K Rollover Date: 9/26/2000 11:51 AM
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I recently resigned from my previous place of employment and am now considering my options with my 401K. My new employer does not have a 401 K program but is in the process of developing one. I received some valuable information about putting it in a Traditional ROTH and managing it myself instead of through my account at a large firm. However, I still have a couple of questions.

1. If I move it all into a traditional IRA in one lump sum, how will I be taxed and will I be taxed.

2. Can I move it into a Traditional IRA and then into a Roth IRA? I would like to get it into a Roth IRA before I reach the salary line (hopefuly I will make it).

3. I already have a Roth IRA. Can you have more than one Roth IRA? I know it is only 1 per year but can you have more than one in your portfolio?

4. If I manage it my self and set-up a IRA (either Roth or Traditional), can I move the funds around at my leisure? I just finished reading The Motley Fool (Great Book) and I want to try some of their recommendations.

Thanks for all your help and sorry for the lengthy text.
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5151 of 19371
Subject: Re: 401 K Rollover Date: 9/26/2000 12:29 PM
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Greetings, Dominyon, and welcome. You asked:

<<I recently resigned from my previous place of employment and am now considering my options with my 401K. My new employer does not have a 401 K program but is in the process of developing one. I received some valuable information about putting it in a Traditional ROTH and managing it myself instead of through my account at a large firm. However, I still have a couple of questions.

1. If I move it all into a traditional IRA in one lump sum, how will I be taxed and will I be taxed.>>


As long as you arrange for the direct transfer of the 401k money to the traditional IRA, there will be no income taxes. That's the cleanest, easiest way of getting the money to the traditional IRA.

OTOH, if you take the money first and then (within 60 days of receipt) put it into a traditional IRA, then you will find the plan only sent you 80% of the 401k. When you get the money, by law 20% must be withheld against potential income taxes. It's just like what happens to your paycheck withholding. You must either come up with the missing 20% during the rollover or declare it as income for the year. If declared as income, then it will be taxed and it will be penalized if you are under the age of 59 1/2. When you file your taxes, that withholding is shown by you as both income for the year and as an advance payment against your tax bill for the year.

Moral: Get with your IRA provider and your plan custodian to arrange for the direct transfer to avoid all that. Both know how to do it, and both can walk you through the administrative hoops you need to jump through to get it done.

<<2. Can I move it into a Traditional IRA and then into a Roth IRA? I would like to get it into a Roth IRA before I reach the salary line (hopefuly I will make it).>>

Yes, but when you do the traditional IRA proceeds become taxable income for the year.

<<3. I already have a Roth IRA. Can you have more than one Roth IRA? I know it is only 1 per year but can you have more than one in your portfolio?>>

You may have as many IRA of any type as you desire assuming you meet the IRA providers' minimum deposit requirements.

<<4. If I manage it my self and set-up a IRA (either Roth or Traditional), can I move the funds around at my leisure?>>

Yes, you can.

Regards..Pixy

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