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(Previously asked in wrong forum)

I just left my old job of 3 years after investing around $7000 in the 401K plan (20th Century Ultra didn't do as well as I'd hoped). I've now got a new job, and I had several options for where to put this money.

I'd decided (with help) to transfer it to an IRA, then from an IRA to a Roth Conversion account. Since I'm 25, this sounds like a fantastic way to embiggen my wallet when I retire by paying taxes now in my current tax bracket, but not paying taxes on my earnings in the Roth.

My problem is that I really can't afford the tax hit right now of the conversion from IRA to Roth. I can't use part of the 401k for taxes because that would be an unauthorized withdrawl.

So my question is should I leave my 401k money in the old company's 401k plan (limited flexibility with mutual funds) until I can take the tax hit, or should I see about putting it in an IRA now (more flexibility with mutual funds, any caveats?) and converting it to a Roth later this year or next?

I'm tempted to put it in an IRA now, but I'm not sure what problems I might run into....

Any advice for an investment newbie?

g
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You don't want to leave it in your old companies account. Have it moved trustee to trustee to an IRA. There used to be something called a conduit IRA. This type of IRA could be transferred to a new company's retirement plan (Pixie, correct me if I am wrong). A regular IRA can not be transferred to a new company's retirement plan. Even if you decide on moving the $ to a Roth IRA, the conduit IRA provides the flexibility.

GP
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g,

How about transferring to a traditional Roth IRA now and then converting some or all of it as you come up with the money to cover the taxes. You are not required to convert all or nothing. You may convert some each year (assuming you meet the income limits). At any rate with the traditional IRA, you would have better choices than some mediocre mutual fund.

Good luck.

Marcusfan
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m,

There is no such thing as a "traditional Roth IRA" (at least until the next seesion of Congress). But yes, the money could go to a regular IRA (I still recommend the conduit type) and then be moved to the Roth X dollars at a time, paying the tax as you go.

GP
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As GP notes, there is no such thing as a traditional Roth IRA. What I intended to say was a traditional IRA and a direct transfer is the best method.

However, a traditional Roth IRA. Hmmm what a great concept. Tax deductible when you contribute the money and tax free when you take it out. Anybody in Congress listening?
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marcusfan wrote:
As GP notes, there is no such thing as a traditional Roth IRA. What I intended to say was a traditional IRA and a direct transfer is the best method.

However, a traditional Roth IRA. Hmmm what a great concept. Tax deductible when you contribute the money and tax free when you take it out. Anybody in Congress listening?


No, they're not listening. Besides, Congress would get it backwards: taxable contributions and taxed on withdrawal. And they'd add a penalty for the privilege.

Piz (Taxes Are Extortion)
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Greetings, G, and welcome. You asked:

<<I just left my old job of 3 years after investing around $7000 in the 401K plan (20th Century Ultra didn't do as well as I'd hoped). I've now got a new job, and I had several options for where to put this money.

I'd decided (with help) to transfer it to an IRA, then from an IRA to a Roth Conversion account. Since I'm 25, this sounds like a fantastic way to embiggen my wallet when I retire by paying taxes now in my current tax bracket, but not paying taxes on my earnings in the Roth.

My problem is that I really can't afford the tax hit right now of the conversion from IRA to Roth. I can't use part of the 401k for taxes because that would be an unauthorized withdrawl.

So my question is should I leave my 401k money in the old company's 401k plan (limited flexibility with mutual funds) until I can take the tax hit, or should I see about putting it in an IRA now (more flexibility with mutual funds, any caveats?) and converting it to a Roth later this year or next?

I'm tempted to put it in an IRA now, but I'm not sure what problems I might run into....

Any advice for an investment newbie?>>


You have to do what you think is best for you. Most Fools would opt for the IRA to gain a broader selection of investment options there as opposed to those in the vast majority of 401k plans. Also, you may want to consider that a transfer from a traditional IRA is the only way you can get that money into a Roth IRA. That doesn't have to be done all at once. You can do it piecemeal over a period of years as you can afford the tax bite should you so desire. Nothing says you have to do so all at once. When you do, though, you must pay the taxes due on the converted income, and those taxes should be paid from outside assets. Otherwise the conversion doesn't make sense.

Regards….Pixy

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GP writes:

<<There used to be something called a conduit IRA. This type of IRA could be transferred to a new company's retirement plan (Pixie, correct me if I am wrong). A regular IRA can not be transferred to a new company's retirement plan. Even if you decide on moving the $ to a Roth IRA, the conduit IRA provides the flexibility.>>

It still exists and is covered in my Foolish Retirement Plan Primer available at http://www.fool.com/retirement . And BTW, a "conduit" IRA is still a regular IRA. It just contains no other money except the rollover money and earnings from a qualified retirement plan. If money is added from contributions or another IRA, though, it loses its "conduit" status.

Regards….Pixy
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GP sez:

<<There is no such thing as a "traditional Roth IRA" (at least until the next seesion of Congress). >>

LOL… And fer sure they'll pass a law creating one, right?

Regards….Pixy
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