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|Subject: Re: 401.k move to IRA||Date: 3/25/2000 2:10 AM|
|Author: jpkiljan||Number: 6882 of 770861|
In my RE "covert operations" plans I'm thinking of moving money out of some of my company's 401K
plan into an existing IRA . Has anyone ever done this and is it even permitted? The work 401k is
administered by Cigna so it's not as if the money's in a company account. My "non employer" IRA has a
better track record and return. Any Ideas?
I'm considering the same thing and I'll be watching the replies to your post with interest. I am not allowed to move my 401k to a Rollover IRA until I retire (pretty soon, now) and you may also have to wait till your retirement date. Also, you probably don't want to co-mingle a 401k distribution into an existing IRA (even if it is allowed), just open up a new one.
No answers, but here are some things I think are relevant:
A 401k usually lets you start taking distributions at without paying the 10% extra penalty at age 55. In your rollover IRA, you will have to wait till age 59-1/2 unless you want to take one of those complicated 72t early withdrawal options.
If you have company stock sitting in the 401k, different rules apply, and you may be able to take just that part of it out without penalty when you leave(have a visit with your administrator).
If your 401k is like many people's, it probably has a few crummy mutual funds to invest in with relatively high fees and mediocre performance. In a brokerage rollover IRA you will have wings! You can buy Spiders, Qubes, a Foolish Four portfolio, bonds, individual stocks--whatever you want. For me, the irony is that, after years of complaining about poor choices, my employer is just now adding the Vanguard Index 500 and a low-cost tech fund.
In your 401k at work there is another annual administrative fee to pay (it might be buried in the statement numbers, but it is there) on top of all the other mutual fund fees. In a rollover IRA, there really is no fee except for trading fees and the time it takes you to decide what to buy--hopefully, those will be very small costs.
Retirement distributions from your 401k may be controlled in some ways by your plan administrator that you may not want (e.g. monthly only with changes once a year or a big lump sum). With your own IRA, you can take it out on whatever schedule makes you and the tax guys happy.
In addition to avoiding the 10% early withdrawal penalty, you want to make sure that you avoid the temporary 20% 'penalty' if you have your 401k distribution check made out to you instead of to the company that is running your rollover IRA. Your employer is required to hold back the 20% as a tax witholding unless it is transfered directly. If you forget this, you may have to go to the bank to get a short-term loan to borrow the 20% back so you can give it to your IRA holding company before the deadline. You will get this money back (minus interest) when you file the following year's taxes, but what a hassle!
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