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Author: txrosie100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77401  
Subject: 401k to IRA Date: 8/28/2004 11:35 AM
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I will be turning 50 in a month. I heard somewhere that I should roll my 401K into an IRA. What are the advantages and disadvantages?
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 42079 of 77401
Subject: Re: 401k to IRA Date: 8/28/2004 1:46 PM
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Rolling your 401K into an IRA has nothing to do with turning 50. It has to do with leaving the job where you have the 401K. Rarely is it possible to do this rollover while you are still working for that employer.
You have more choices in your IRA, because they are governed by your trustee rather than by an agreement between your employer and a company hired by your employer to manage 401ks. With that company eliminated, you won't be paying that entity. It is possible that your employer is paying all the fees, but often that isn't the way it works.
You may be overwhelmed with choices. Usually in a 401k your choices are limited to an array of mutual funds. In an IRA you might buy any mutual fund or any stock, or a bond, or a GNMA, or a host of publically traded investments.
When you leave the employer with whom you accumulated the 401k, you have the choices of leaving the money with the present plan, rolling it to an IRA, or perhaps to start taking annuity payments. Unless you are totally inept at investing and don't care to learn, IMHO to roll to an IRA as soon as you have that option is a no-brainer.
Best wishes, Chris

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 42080 of 77401
Subject: Re: 401k to IRA Date: 8/28/2004 5:19 PM
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I heard somewhere that I should roll my 401K into an IRA. What are the advantages and disadvantages?

If you separate from service and you have less than $5,000 in the 401(k), the 401(k) plan may require a distribution, which could be either receiving the funds, or rolling the funds into a "Rollover IRA" (a Traditional IRA funded exclusively with moneys from a qualified plan such as a 401(k)) or into the next employer's qualified plan if that plan can accept rollovers.

I don't know what being 50 has to do with it unless your 401(k) plan specifically allows an in-service transfer at age 50, which I thought was pretty rare.

Advantages of an IRA:

1. You have a wide choice of investments and custodians. Typically, you would start with an investment plan, then pick investments that best meet that plan, and finally pick the appropriate custodian(s). So, for example, if your plan involves index funds, you could establish a "Rollover IRA" at, say, Vanguard and have the moneys invested in one or more index funds that they offer, and end up having far lower expenses than most 401(k) plans would offer in their closest equivalent fund(s). Or if your plan involves purchasing stocks, you could open your Rollover IRA at a suitable discount broker. In any case, you are getting away from the (sometimes quite limited, often more expensive) 401(k) investments and have your own choices for investments.

2. You will not have "blackout periods", sometimes up to a year, when you cannot access your investments because the employer is merging with or being purchased by another company, or is changing 401(k) providers, or has declared bankruptcy.

3. Your money won't suddenly be invested in other investments than you thought. When an employer changes 401(k) providers, often the current investments are sold off and the money invested with what the new provider offers, which might have loads, higher expenses, and some investment differences. Since a Rollover IRA is under your control, not an employer's control, your IRA will not give you those unpleasant surprises.

4. One can make a withdrawal for a "first time" home purchase ("first time" defined far less restrictive than this sounds), up to $10,000 (lifetime limit) before one is 59.5 and not pay penalties. (One still pays income tax--it is the 10% federal penalty that is waived.)

5. One can make withdrawals following a provision of 72T to avoid paying penalties before one is 59.5. One of the 72T provisions is "Substantially Equal Periodic Payments" (based on one's life expectancy and the balance), but SEPP must last at least until one is 59.5 or for at least 5 years, whichever is longer. But this is a way to tap into part of one's retirement money before one is 59.5 without having to pay the 10% penalty (though one still generally pays income tax).

Advantages of a 401(k):

1. One has ERISA protection of assets from creditors. This is important if one's occupation tends to attract lawsuits. (ERISA protection doesn't apply if the only participants in the 401(k) are the owner and the owner's spouse.) IRA protection from creditors varies based on state laws. Generally, though, both the 401(k) and IRA can be redistributed due to divorce court decree.

2. Tax laws allow one to make withdrawals from the most recent employer's 401(k) if one has retired from that employer after one had turned 55 years old. (At least that is what a financial planner had told me. I could be misremembering things.)

3. If one is still working for that employer, many 401(k) plans (about 60% of them) have loan provisions. Not that I advocate 401(k) loans, but that is one way to temporarily use part of one's retirement money and then replace that money (by repaying the loan). An IRA, on the other hand, cannot be borrowed against (though there is the 60-day rollover provision that some are tempted to use as a short-term loan), nor can assets in an IRA be used as collateral for a loan.

4. Some 401(k) providers may offer investment options not available for a typical IRA. For example, it isn't all that unusual for institutional shares of funds be offered, whereas in an IRA one would have investor shares, typically the difference being expense ratios and loads, which are generally less in institutional shares.

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Answer Team Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 42081 of 77401
Subject: Re: 401k to IRA Date: 8/28/2004 5:29 PM
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Now when you reach 50, what you could take advantage of is an extra $500 catchup contribution to an IRA. Since you are participating in a 401k, if your income is not excessive you should be able to contribute $3500 into a Roth this year ($4500 next year).

Fuskie
Who just wanted to mention it...

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Author: sunrayman Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 42082 of 77401
Subject: Re: 401k to IRA Date: 8/28/2004 5:29 PM
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I don't know what being 50 has to do with it unless your 401(k) plan specifically allows an in-service transfer at age 50, which I thought was pretty rare.


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Some 401k plans allow you to begin withdrawals from your 401k @ age fifty. Usually, you must declare yourself to be "retired" to exercise this option.


sunray
has one of these 401k plans



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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 42083 of 77401
Subject: Re: 401k to IRA Date: 8/28/2004 6:20 PM
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sunray
has one of these 401k plans
>


This is true unless the 401k plan is part of a profit sharing plan.

See IRS Pub 590 Page7



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Author: Rijer One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 42126 of 77401
Subject: Re: 401k to IRA Date: 9/1/2004 12:44 PM
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My employer allows unrestricted withdrawals from the 401K for those over age 59 1/2. I do not know whether this is a legal requirement or simply a company practice.

I have no desire to have to decide how to reinvest a large lump sum when I retire in a few years. So I have begun rolling over $20,000 each month to an IRA. I can sensibly reinvest 20,000 each month, and by the time I retire the 401K will be reduced to a small enough amount I can deal with the lump sum settlement.

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