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Author: RexHavoc Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Fooling with IRA/SEP-IRA/401k Date: 4/13/1998 10:07 PM
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Hello! I've recently become Foolish and spent several hours today reading the posts, but haven't found exactly what I need...

I'm self employed and have recently (hastily - tax time...) set up an SEP-IRA at a bank at a pitiful interest rate, which I'd like to transfer to a broker and with which I intend to start a Foolish Four plan.

I also have a Credit Union IRA earning a terrible rate as well that I'd like to move into a Foolish Four plan.

Are there any compelling reasons to leave that poor-performing money where it is and start the FF plan with "new money?" They only total about $3.5k.

I have substantially more (~25k) in an existing 401k plan from a long-ago former employer, currently in several mutual funds. Can I move this money into some other "vehicle" without getting hammered? Or am I limited to just maneuvering within the confines of the Plan?

Any information or pointers to information would be appreciated.

Thanks!
Rex
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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: 2806 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/14/1998 9:33 AM
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Greetings, RexHavoc, and welcome.

<<I'm self employed and have recently (hastily - tax time...) set up an SEP-IRA at a bank at a pitiful interest rate, which I'd like to transfer to a broker and with which I intend to start a Foolish Four plan.

I also have a Credit Union IRA earning a terrible rate as well that I'd like to move into a Foolish Four plan.

Are there any compelling reasons to leave that poor-performing money where it is and start the FF plan with "new money?" They only total about $3.5k.

I have substantially more (~25k) in an existing 401k plan from a long-ago former employer, currently in several mutual funds. Can I move this money into some other "vehicle" without getting hammered? Or am I limited to just maneuvering within the confines of the Plan?>>

There is absolutely no reason you cannot move all of these monies to a SEP-IRA you establish with a broker of your choice. In fact, the broker can help you arrange for a direct transfer of all these funds to a single, consolidated, self-directed SEPaccount within which you can do your own trading using the strategy of your choice. The only drawback (if it is one) is moving your 401k money to this account. By doing so, the money becomes "tainted," which means in the future it can no longer be transferred into a new employer's 401k plan should you desire to do so. To Fools, this is a non-issue, but many like the ability to do so. If that's true in your case, then the 401k money should be transferred to an IRA all by itself. Doing so will ensure it retains eligibility for later transfer to a new employer's plan.

To avoid any and all tax effects, in moving this money ensure you arrange for custodian-to-custodian direct transfers. Your broker can help you do this. Also, don't be surprised if the 401k money can't be moved until certain times of the year. Many plans have strict windows for withdrawal (such as once each quarter), so there may be a slight delay in that transfer.

Regards…..Pixy!



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Author: RexHavoc Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2808 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/14/1998 11:02 AM
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[[The only drawback (if it is one) is moving your 401k money to
this account. By doing so, the money becomes "tainted," which means in the future it can no longer
be transferred into a new employer's 401k plan should you desire to do so. To Fools, this is a
non-issue, but many like the ability to do so. If that's true in your case, then the 401k money should
be transferred to an IRA all by itself. Doing so will ensure it retains eligibility for later transfer to a
new employer's plan.]]

Am I reading you correctly: Keep the 401k rollover in its own SEP-IRA account, and put any other funds (new investments, IRA rollovers, etc.) into a different SEP-IRA account so they don't taint the 401k funds?

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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: 2821 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/14/1998 5:18 PM
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RexHavoc,

<<Am I reading you correctly: Keep the 401k rollover in its own SEP-IRA account, and put any other funds (new investments, IRA rollovers, etc.) into a different SEP-IRA account so they don't taint the 401k funds?>>

Keep the 401k rollover in what's called a "conduit" IRA, a form of traditional IRA so-called because the only money you put into it is money that came from a qualified retirement plan like a 401k. As long as that's the only kind of money in that IRA, then it along with all earnings thereon may later be transferred to a new employer's qualified plan that accepts rollover money from other qualified retirement plans. Hence the name "conduit" because the interim IRA is the conduit between the plans for that money.

Regards…..Pixy



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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2852 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/15/1998 1:13 PM
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<<<Am I reading you correctly: Keep the 401k rollover in its own SEP-IRA account, and put any other funds (new investments, IRA rollovers, etc.) into a different SEP-IRA account so they don't taint the 401k funds?>>

Keep the 401k rollover in what's called a "conduit" IRA, a form of traditional IRA so-called because the only money you put into it is money that came from a qualified retirement plan like a 401k. As long as that's the only kind of money in that IRA, then it along with all earnings thereon may later be transferred to a new employer's qualified plan that accepts rollover money from other qualified retirement plans. Hence the name "conduit" because the interim IRA is the conduit between the plans for that money.>

I am mystified by why anyone would want to bother with a conduit IRA, since so many posts here and on the tax folder are concerned with how to get the money OUT of a 401(k) or 403(b)(?) because of the lousy investment options. Is there even one 401(k) plan that offers BETTER investment choices than those available in any decent broker-sponsored self-directed IRA? Why would anyone wish to transfer hard-earned funds back into a 401(k) or, worse, a 403(b)

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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: 2860 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/15/1998 3:09 PM
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JeanDavid,

<<I am mystified by why anyone would want to bother with a conduit IRA, since so many posts here and on the tax folder are concerned with how to get the money OUT of a 401(k) or 403(b)(?) because of the lousy investment options. Is there even one 401(k) plan that offers BETTER investment choices than those available in any decent broker-sponsored self-directed IRA? Why would anyone wish to transfer hard-earned funds back into a 401(k) or, worse, a 403(b)>>

Because some folks prefer leaving the management to someone else or perceive a better opportunity within a plan as opposed to outside of it. The conduit IRA leaves that option open. Anyone who even thinks it's a remote possibility they may one day want to deposit those funds in a new employer's plan should use the conduit. It just makes sense not to close your options needlessly. Nothing prevents them from self-directing in the conduit, either.

Regards….Pixy




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Author: nonqual One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2884 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/16/1998 5:36 PM
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<<Because some folks prefer leaving the management to someone else or perceive a better opportunity within a plan as opposed to outside of it.>>

Isn't there also something about being able to withdraw money from a former employer's plan after age 55 without incurring the 10% pre-59 1/2 penalty?
If yes, is this flexibility lost if the funds go into a conduit IRA?

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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: 2885 of 76418
Subject: Re: Fooling with IRA/SEP-IRA/401k Date: 4/16/1998 5:42 PM
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Nonqual,

<<Isn't there also something about being able to withdraw money from a former employer's plan after age 55 without incurring the 10% pre-59 1/2 penalty?
If yes, is this flexibility lost if the funds go into a conduit IRA?>>

Yep....That's definitely another consideration. You can withdraw from a qualified retirement plan after age 55 (provided you're no longer working for that employer in most cases) and not be subjected to the 10% early withdrawal excise tax. Put the money in an IRA, and you're subject to IRA rules. The magic age in the latter is 59 1/2.

Good point!

Regards....Pixy

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