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Author: ethan2828 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Planning a strategy, 401(k) and Roth Date: 12/12/2001 2:07 PM
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Hello, and good day to you all :)

I have been trying to educate myself on the magic of retirement investing, and I would like your critique of my plan. I am married and my spouse doesn't work. My employer offers a 401(k) that I am allowed to put 15% of my pre-tax income into. I am 27, and I am going to retire early (and the earlier the better ;). Here is my plan: To enroll in the 401(k) and put in the max 15%. They don't offer any matching, nor do they have an index fund to invest in. I plan to split 50/50 the money between balanced shares and growth/income funds. I figure the pre-tax dollars, even though unmatched, are worth putting toward anything at this point. In addition, I think I understand that I can contribute $2k to two Roth IRAs, one in my name and one in my spouse's name, even though my spouse has no income. Is this legal? Now, when I quit the company I work for I plan to transfer the 401(k) monies into one of the Roth accounts. It is my understanding that this transfer does *not* sount toward the $2k yearly I am allowed to contribute. Will I have to pay takes on that 401(k) money when the transfer (rollover?) takes place?

Your suggestions, comments, bonks on the head are all welcome :)

Thank you!
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Author: PMcMullenCT Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32818 of 75383
Subject: Re: Planning a strategy, 401(k) and Roth Date: 12/12/2001 2:35 PM
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In addition, I think I understand that I can contribute $2k to two Roth IRAs, one in my name and one in my spouse's name, even though my spouse has no income. Is this legal?

Yes

Now, when I quit the company I work for I plan to transfer the 401(k) monies into one of the Roth accounts.

Technically, you can't do this. What you do is rollover the 401K to a Traditional IRA, then you can convert that to a Roth IRA, but the end result is the same.

It is my understanding that this transfer does *not* sount toward the $2k yearly I am allowed to contribute.

Correct

Will I have to pay takes on that 401(k) money when the transfer (rollover?) takes place?

When you convert funds from the Traditional IRA to a Roth IRA, they are included as income in the year they are converted. You declare the income and pay any taxes owed when you file your taxes. Of course, if the tax cost is prohibitive, you can choose to convert only a portion of the funds each year, spreading out the tax burden.



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