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Author: stocks2grow Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75377  
Subject: IRA confusion Date: 10/30/2009 4:35 PM
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I am thinking of taking a 401k (don't work there anymore) and putting it into an IRA. I've heard you can have the 401k company do a trustee to trustee transfer (rollover), but that it takes awhile to get them to do it. I also heard that in order to make things happen faster, you can also have the 401k plan send you the proceeds in a check and you have 60 days to deposit it into the newly created IRA. Is that correct?

Also, I'm deciding which type IRA to start (Roth vs Traditional), so a few questions:
1. The inital amount you put in there to start the IRA is not subject to the annual contribution limits, right? In other words, the new IRA can be started with all the funds from the 401k and that can be more that the annual limit of (?) $5000,right?
2. With a traditional IRA, if you are subject to a contribution phaseout window due to income amount, can you still contribute, but NOT claim a deduction? Alternatively, can you contribute to the tradtional IRA, and then rollover the non-deductible amount to a Roth IRA?

Thanks,
Mike
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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66435 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 4:50 PM
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...I've heard you can have the 401k company do a trustee to trustee transfer (rollover), but that it takes awhile to get them to do it. I also heard that in order to make things happen faster, you can also have the 401k plan send you the proceeds in a check and you have 60 days to deposit it into the newly created IRA. Is that correct?....

It is possible but there are numerous ways to shoot yourself in the foot by trying to do the transfer yourself. The slam dunk best way to transfer the money is to contact your new IRA company(not the 401k company), fill out a few pages of paperwork to open the IRA and have them handle the transfer. Unless you are in a very unusual situation this should take less than two weeks. The 401k may charge a handling fee of around $50 or so.

1. The inital amount you put in there to start the IRA is not subject to the annual contribution limits, right? In other words, the new IRA can be started with all the funds from the 401k and that can be more that the annual limit of (?) $5000,right?

Yup.

Greg

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66436 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 4:52 PM
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P.S.

If there is company stock in the 401k ask about this. There are potential tax problems with taking it out of the 401k.

Greg

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66437 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 5:13 PM
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I've heard you can have the 401k company do a trustee to trustee transfer (rollover), but that it takes awhile to get them to do it.

That has been my experience.

I also heard that in order to make things happen faster, you can also have the 401k plan send you the proceeds in a check and you have 60 days to deposit it into the newly created IRA. Is that correct?

Well, other than the fact that it doesn't have to be a 'newly created' IRA, yes. You can roll it into another IRA that you already have set up, if you want to.

One word of caution - you do need to have the check made out something like "new custodian, FBO (For Benefit Of) stocks2grow". That way there won't be any taxes withheld like there would if the check were just made out to "stocks2grow". You should call your new custodian to get the exact wording of how they want to have the check made out, plus determine what forms you need to fill out for them.

1. The inital amount you put in there to start the IRA is not subject to the annual contribution limits, right? In other words, the new IRA can be started with all the funds from the 401k and that can be more that the annual limit of (?) $5000,right?

Correct. The rollover is in addition to any annual contributions you are eligible to make.

2. With a traditional IRA, if you are subject to a contribution phaseout window due to income amount, can you still contribute, but NOT claim a deduction?

Or claim a partial deduction, yes. You would need to fill out Form 8606 to document how much basis you have in the IRA that you have claimed taxes on.

Alternatively, can you contribute to the tradtional IRA, and then rollover the non-deductible amount to a Roth IRA?

Maybe. Starting in 2010, there will be no income cap, so if that was what was restricting you from converting, you don't have to deal with that any more.

However, if you have any other IRAs that were deductible (like your rollover IRA), you cannot just convert the part of your IRA portfolio that was not deductible. It is pro-rated, so if 10% of your total IRA balance was non-deductible contributions and the other 90% was deductible contributions and/or untaxed gains, you would have to pay taxes on 90% of any conversion that you did.

If you are eligible, it would probably be better to make the contribution to the Roth IRA, rather than trying to contribute to a non-deductible IRA and convert. If you are not eligible, then you need to figure out if it's worth it to make non-deductible contributions and do partial conversions, or if you would rather have some of your investments in taxable accounts.

IRS Publication 590 has more information: http://www.irs.gov/pub/irs-pdf/p590.pdf

AJ

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66438 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 6:20 PM
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It is possible but there are numerous ways to shoot yourself in the foot by trying to do the transfer yourself.

I disagree. I have done at least 8 rollovers, all with the checks coming to me, and have never had any issues. The key is to make sure the check is made out to the new custodian, for your benefit, not directly to you.

The slam dunk best way to transfer the money is to contact your new IRA company(not the 401k company), fill out a few pages of paperwork to open the IRA and have them handle the transfer. Unless you are in a very unusual situation this should take less than two weeks.

The times that I tried this, the 401(k) plan wanted way more documentation from the new custodian than they wanted from me, and it was going to take significantly longer because of the additional documentation. The last time I tried this, I spent over a week trying to get the documentation straight with everyone, finally gave up and had the 401(k) send me a check.

The one thing that you do need to do is to ensure that you get from the new custodian exactly how the check should be made out, and convey that to the 401(k) plan.

AJ

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Author: PKnudsen Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66439 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 8:40 PM
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I am thinking of taking a 401k (don't work there anymore) and putting it into an IRA. I've heard you can have the 401k company do a trustee to trustee transfer (rollover), but that it takes awhile to get them to do it.

I did that when I left my employer. Don't recall how long it took, but it was not an unreasonable length of time.

1. The inital amount you put in there to start the IRA is not subject to the annual contribution limits, right?

Right. You've already contributed that! Don't know about the rest of your question.

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Author: stardustangel Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66440 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 9:37 PM
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I have transferred two different 401ks to IRA's - one from within vanguard to vanguard and both took about 4 weeks which is not a particularly long time frame I think.

This last time, I requested a check and was careful to tell them not to withhold anything. The check was in my name, I deposited into the new account and it was not an issue. As far as I know, no red flags from a tax standpoint. I have documentation from both companies to prove it was a rollover should I ever get audited. I don't think, but maybe the experts will correct me, that it is such a big deal that the check arrives in your name. You could for example, withdraw all the money from your IRA, have a change of heart, and put it right back in there as long as it is within 60 days, so who cares to whom the check is made out. All told that process took about 2 weeks: closing account, receiving check, opening new acct, redepositing check, new acct acknowledging receipt of check.

In retrospect, it's easier I think just to do a company to company transfer- No fretting about a big fat check making it to you in the mail, no fee for overnighting the check to new company. And it really is only an additional 2 weeks.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66441 of 75377
Subject: Re: IRA confusion Date: 10/30/2009 11:16 PM
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"I don't think, but maybe the experts will correct me, that it is such a big deal that the check arrives in your name."

When you do this, if you indeed get a check for the full amount and get it deposited in an IRA within the time limit, there is no problem.

But many find that the former custodian takes a withholding deduction. This deduction must be replaced with funds outside the account and if not is treated as a penalty distribution. This causes much trouble for some. A direct transfer avoids this and possible check lost in the mail etc, all of which can make for big headaches.

But if taking a check worked for you, fine.

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Author: DorothyM Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66442 of 75377
Subject: Re: IRA confusion Date: 10/31/2009 8:44 AM
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I am thinking of taking a 401k (don't work there anymore) and putting it into an IRA. I've heard you can have the 401k company do a trustee to trustee transfer (rollover), but that it takes awhile to get them to do it. I also heard that in order to make things happen faster, you can also have the 401k plan send you the proceeds in a check and you have 60 days to deposit it into the newly created IRA. Is that correct?

It all depends. When I retired I requested Vanguard's conversion "kit" which was a booklet of forms (rather complicated) necessary for Vanguard to contact my 401k and "collect" the monies in my account. Estimated time to complete, several hours.

As it turned out my 401K had a one-page form asking for my SS#. reason for withdrawal, retirement date and signature, company and account # to which monies were to be transferred. Time to complet: about 3 minutes. Within 2 weeks the money was in my Vanguard account. (Note: Vanguard wanted to know how much money to expect and when. Flawless and easy transfer just a few months before the economy tanked.

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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: 66445 of 75377
Subject: Re: IRA confusion Date: 10/31/2009 8:11 PM
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If the trustee of the 401k of the company you used to work for sends check, made out to you, they are required to deduct 20% for taxes. Then to avoid an unintended "distribution" you must replace that money from your pocket.

It is OK if they send you the check, made out to your IRA trustee and you forward it to the IRA trustee. It is also ok if the 401k trustee sends the check directly to your IRA custodian.

When I've done this, twice now, it took a few weeks. I found that acceptable.

Best wishes, Chris

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Author: ldanby1952 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66448 of 75377
Subject: Re: IRA confusion Date: 11/2/2009 5:39 AM
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You understand everythinh allright.

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66451 of 75377
Subject: Re: IRA confusion Date: 11/2/2009 4:38 PM
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Watty56,

You wrote, It is possible but there are numerous ways to shoot yourself in the foot by trying to do the transfer yourself. The slam dunk best way to transfer the money is to contact your new IRA company(not the 401k company), fill out a few pages of paperwork to open the IRA and have them handle the transfer. Unless you are in a very unusual situation this should take less than two weeks. The 401k may charge a handling fee of around $50 or so.

I don't know about that advice. I've had 6 401(k) to IRA rollovers in the past - 7 if you count one 401(k) plan that had both a conventional and Roth option - and I've have checks sent to me, checks sent to the IRA custodian and wire transfers to the IRA custodian. I've also done a transfer from a mutual fund IRA custodian to brokerage IRA custodian.

The wire transfer was the most recent and was definitely the fastest. Personally needing to handle a paper check is a nuisance, plus you risk having it mishandled and not marked FBO and having taxes withheld. Also I've notices little difference is processing time between having the check sent to me vs. the IRA custodian. Almost all of the delay is with the 401(k) custodian.

My last rollover was processed in just over a week. I've had them take a month or more.

Finally, I don't believe any IRA custodian can initiate a 401(k) rollover for you. I believe that must be done by you or someone with appropriate power of attorney.

- Joel

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Author: richinaz Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66453 of 75377
Subject: Re: IRA confusion Date: 11/3/2009 8:25 PM
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Finally, I don't believe any IRA custodian can initiate a 401(k) rollover for you. I believe that must be done by you or someone with appropriate power of attorney.

- Joel


Sure they can, kind of. The paperwork you fill out with the new custodian contains your info and signature,etc. I have never received a check for any rollover I've ever done. I've rolled money from companies I've left to Vanguard and Fidelity. Later I've rolled money from those companies into Scottrade. I never contact the original company, just the new company and usually it is done fairly quickly. A few weeks tops.

Rich

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