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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: of 75664  
Subject: Re: Looking for Control of my $$$ Date: 9/26/1997 3:57 PM
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Greetings, HumbleFool, and welcome to the wacky world of Fooldom.

<<I am new to the Motley Fool, and have a few questions about getting control over our retirement funds.

1. I am assuming that a self-directed IRA is a tax exempt vehicle where I can decide which stocks I want to invest the money in. If this is incorrect, please let me know.>>

Any IRA, whether self-directed or otherwise, is a vehicle in which earnings are always allowed to grow tax deferred. Tax exempt means the proceeds will never be taxed, whereas tax deferred means the proceeds will be taxed at some point in the future. IRAs are taxed when money is withdrawn from them, usually after age 59 1/2. Their advantage is the earnings are allowed to grow untaxed before then, which dramatically increases the size of the IRA by the time withdrawals take place and taxes do have to be paid.

<<2. I have been investing 6% of earnings into a 401K for the past 6 years. My company matches 2%. If I cannot transfer that money into a self-directed IRA account, should I reduce my contribution to 2% and put the rest of the money in a self-directed IRA myself? >>

Quite possibly. Next year when the new Roth IRA comes into being, you may want to contribute the 2% to your IRA, put the next $2K into the Roth, and then put anything above that combination back into the 401k. It all depends on your age, income, tax bracket, and years to retirement. Other factors to consider are the return within the 401k as opposed to an IRA (non-deductible or Roth) as opposed to a regular, taxable investment account. There is no "one size fits all" answer here. It all has to be looked at on a case-by-case basis.

<<3. My husband just started contributing 5% to a 401K, and his company has not decided if they will be contributing anything yet. Should he drop out of the 401K and just place that money in a self-directed IRA?>>

He may -- in the absence of a match from his employer -- do far better outside the 401k. But the same factors listed above apply here, too.

<<4. If we rolled my husband's 401K money from his previous employer into an annuity account approx. one year ago. Can I now roll that money into a self-directed IRA? >>

You can, but typically annuities contain a penalty for witdrawals and cancellation within the first five years. Some go far longer than that. You have to look at the penalty in the contract. You will probably find that to do so this early is far too costly.

<<5. How do I invest in a self-directed IRA? Do I just ask my employer to have the money transferred? Should I be putting all this money into one IRA account?>>

Contact a broker of your choice to set one up. They all know how to do so. In your case, though, it will be a non-deductible IRA (dependng on you adjusted gross income and filing status) because you have the 401k. Your employer can't transfer any of the 401k money to an IRA while you are still employed. Some will allow a payroll deduction from each check and send it to an IRA, though. You'll have to ask your HR folks about that. And things are much simpler in a self-directed IRA if all the money is in one account. It's less expensive and easier to tack that way.

<<Looking back, I see that I have alot of questions, but help on any or all of them would be most appreciated.>>

I hope that helped. If you have more, just ask anywhere within Fooldom and we'll try to give you an answer you can use.

Regards........Pixy


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