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Author: Frontosa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: 401k to IRA, and other issues Date: 2/2/2000 4:47 PM
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Here's the situation:

I contribute to my current company's 401k. I have a 401k from a previous employer that I would like to rollover into an IRA so that I can Foolishly manage it on my own. I am also considering contributing to an IRA on my own.

From what I've read of IRS Pub 590, and this board, I can only rollover that 401k into a traditional IRA. Also, any contributions that I make into an IRA won't be tax deductible since I am covered by 401k.

It seems to me that for my future contributions, I should setup a ROTH IRA.

Questions:

Did I read correctly that earnings from Roth are tax exempt? If so am I correct that at retirement, the distributions from Roth are tax free, as opposed to Tradition IRA that is taxed as standard income? I've had trouble figuring out if there is a limit on AGI for contributing to ROTH, what is the story here?

Once my 401k is in an IRA, would there be much reason to convert to a ROTH? The size of this one won't be larger that $15k, and my contributions (outside 401k) would not go into this IRA.

BTW: I will still be contributing to my corporate 401(k) approaching maximum.

Thanks for any input.
Frontosa
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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: 18636 of 75335
Subject: Re: 401k to IRA, and other issues Date: 2/2/2000 5:06 PM
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Greetings, Frontosa, and welcome. You asked:

<<Did I read correctly that earnings from Roth are tax exempt? If so am I correct that at retirement, the distributions from Roth are tax free, as opposed to Tradition IRA that is taxed as standard income? I've had trouble figuring out if there is a limit on AGI for contributing to ROTH, what is the story here?>>

You are correct that earnings may be taken from a Roth tax-free; however, you must be age 59 1/2 or older and the Roth must have been open for five tax-years at the time of withdrawal. Your ability to contribute to a Roth depends on your filing status and your adjusted gross income. A single filer may contribute up to $2K per year when AGI is $95K or less, a joint filer when AGI is $150K or less.

<<Once my 401k is in an IRA, would there be much reason to convert to a ROTH? The size of this one won't be larger that $15k, and my contributions (outside 401k) would not go into this IRA. >>

IMHO very few conversions make sense. Much depends on how the taxes due at that time will be paid, how long the money can stay in the Roth, your tax rate today versus that at withdrawal, and the size of plus your desires for your estate. For details on the type of things you need to consider, see my analysis in post 1567 on this board at http://boards.fool.com/Message.asp?id=1040013000441002&sort=postdate.

Regards..Pixy



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Author: Frontosa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18637 of 75335
Subject: Re: 401k to IRA, and other issues Date: 2/2/2000 5:37 PM
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Pixy,

Thanks for the info, I'll be sure to look at your analysis. The IRA's are strictly for retirement ( hence the "R" in IRA <grin> ), unless something truly unexpected happens, what goes in doesn't come out until 59 1/2 or later. I'll be making other (hopefully Foolish) arrangements for children's education when they come along.

BTW: in case i didn't mention it in my original post, I am 31 and my wife is 29.

Something else is confusing me:
Is there an AGI cap on the Traditional IRA?

I thought I read that the Roth was for those who had to large an income for the Traditional. Do I have that part backwards?

Much appreciated
Frontosa

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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: 18653 of 75335
Subject: Re: 401k to IRA, and other issues Date: 2/3/2000 9:57 AM
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Frontosa writes:

<<Is there an AGI cap on the Traditional IRA? I thought I read that the Roth was for those who had to large an income for the Traditional. Do I have that part backwards?>>

For details on IRAs, see our IRA area at http://www.fool.com/money/allaboutiras/allaboutiras.htm. As long as you have earned income and are under the age of 70 1/2, you may always contribute to a traditional IRA. The only question is whether or not that contribution will be deductible, and that depends on your participation in a retirement plan through work as well as your filing status and adjusted gross income. As long as you have earned income, you may contribute to a Roth IRA regardless of age, but the allowable contribution is subject to adjusted gross income limits based on your filing status.

Regards..Pixy

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Author: meerbott One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18661 of 75335
Subject: Re: 401k to IRA, and other issues Date: 2/3/2000 12:34 PM
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I am in the process of rolling over an old 401k into a rollover IRA and also have a couple of question along these lines...

When you directly rollover a 401k into a rollover IRA, is it true that there are no tax implications/penalties to the individual.

Also, when you set up a rollover IRA and make your own trades via a discount/online broker, how are the commissions paid for? Are you allowed to use some of the balance in the IRA without any penalties, or do you have to set up an additional account to use for trading commissions?


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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: 18664 of 75335
Subject: Re: 401k to IRA, and other issues Date: 2/3/2000 12:41 PM
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Greetings, Meerbott, and welcome. You asked:

<<When you directly rollover a 401k into a rollover IRA, is it true that there are no tax implications/penalties to the individual.>>

Yes, that's correct.

<<Also, when you set up a rollover IRA and make your own trades via a discount/online broker, how are the commissions paid for? Are you allowed to use some of the balance in the IRA without any penalties, or do you have to set up an additional account to use for trading commissions?>>

Trading fees for IRA transactions must be paid for with money inside the IRA. Therefore, you must use the balance that's inside the IRA.

Regards..Pixy


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