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Author: daisyi295 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: rolling over 401k to ira Date: 5/19/2000 2:06 PM
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Help-both my fiance and I have moved to another state and changed jobs. We need to either move our 401k money to an ira or take it in lump sum. we know we probably shouldn't take the lump sum because of the 20 percent penalty that we would be taxed. so we were wondering what kind of ira to put our money in. also we will be getting marrid so since his 401k balance is smaller than mine can he rollover his money into my ira or does he have to put it into an ira in his name??? Is it true we can take out up to 10,000 to put towards a down payment on a home? We have no savings and that would be great as we want to buy a house in the next year or so. Also, if we can withdraw from the ira for this purpose is it tax free or is there a penalty??? If we do rollover our 401k money would it be best to get an ira at our present credit union (better rates?), or should we find a bank in our new area where we just moved to???? i was thinking it would be better to get the ira's at our present cr. union as that's who we've been banking with for awhile, and they would be more apt to give us a homeowners loan when it comes time to buy. Is this a correct assumption? please help, i know i have so many questions but i'm a little confused. We will be first time home buyers too!!!! thanks anyone for your advice.

Robin
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Author: jrr7 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: 22077 of 75381
Subject: Re: rolling over 401k to ira Date: 5/19/2000 2:34 PM
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Hi daisyi295

IIRC when you take a lumpsum distribution, they withold 20% as witholding, but you owe the IRS a 10% penalty PLUS your marginal tax rate (if you're in the top bracket, that totals 50%) and you square up with the IRS next tax day (but it's likely you'll owe estimated tax, and you'd better pay it).

You each have to roll your 401K into an IRA in your own name (no comingling is allowed unless you're married and one of you dies).

I advise you not to raid your IRAs to buy a home, especially since you have no savings. The withdrawal is counted as income and you have to pay taxes on it (again, check to see if you need to pay quarterly estimated taxes). You give up tax-deferred growth (there's no way to get that back). Owning a home has a lot of hidden and unexpected costs; you need to have a cash reserve available to pay for (new drapes/new carpet/water heater dies/yard work).

You should choose the custodian of your IRA with care since your custodian gets to pick what you can invest in with your IRA. At a credit union, you might only be able to invest in fixed-interest share certificates (CDs) whereas you should be aiming for growth with your retirement portfolio. Some banks do offer IRAs that let you buy stocks, but there are typically high fees to do so.

IRAs may not be used as security for a loan; I'm skeptical that the CU would give you more consideration if you held them there. But I'm asking you to reconsider buying a house so soon.

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Author: daisyi295 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22078 of 75381
Subject: Re: rolling over 401k to ira Date: 5/19/2000 3:09 PM
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i was told by the cr union they offer 4.something on their ira's. last yr i made a return on my 401k of 13.25 percent. that seems like a drastic reduction in interest to roll my 401k over to an ira. are all lending institutions offering the same return on ira's or does it just have to dowith what funds each bank invest in for their ira's? do i get to choose what funds my ira is in if i go through a regular bank??? i was told a 401k isn't good unless you're making at least 10 percent return annually so why would i want to rollover our 401k's to an ira at this credit union??? am i not understanding correctly when the cr union says they offer this 4.something interest rate? is this just what they offer and i can actually make more on top of that depending on how the funds in that ira perform??? as you can see, i'm new at this. i really see what you mean about not buying too soon as i should have money in savings first for those unexpected things so i will wait and start saving more but we really want to buy within a yr or so because we're just throwing money away on renting. anymore advice you can give is greatly appreciated. can you answer my questions above please??? thanks again, robin

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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22079 of 75381
Subject: Re: rolling over 401k to ira Date: 5/19/2000 3:21 PM
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Firstly, a 401(k) or IRA is a type of account and thus it is crucial to understand the underlying investment choices.

I suspect that the credit union is offering something like a money market account which pays 4.something and this is because it is a very safe investment in terms of protecting the principal amount, while inflation may eat up alot of the returns. Now, a few alternatives would be to roll over the 401(k) to a brokerage firm or mutual fund company that would have other options, all of which have more risk and in most cases better returns in the long-run.

I'd make a suggestion of reading a book like, "Investing for Dummies" by Eric Tyson as a good first book about understanding your investment options as I suspect you should do some reading on this stuff and possibly others will have other ideas, but the key is this: Educate yourself.

JB

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22080 of 75381
Subject: Re: rolling over 401k to ira Date: 5/19/2000 4:35 PM
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I've read the thread to the moment and have drawn a a couple of conclusions:

1. You're almost totally befuddled and definitely overwhelmed.

2. The absence of paragraphs tells me that you're not analyzing, just addressing random thoughts. (This isn't a flame, it's an observation that leads to some of my recommendations.)

My recommendations:

1. For the time being, leave the 401(k) money where it is, assuming the plans allow. READ WHAT THEY GIVE YOU carefully and ask questions NOW if there's something you don't understand.

2. If a current 401(k) does not allow you to leave the money there after separation, roll it directly into an IRA WITHOUT tax withheld. The intended IRA custodian can advise you on how to do this, and if you run into any snags or questions, come back with details. There are time limits involved with these things, and you have to get it right during that time.

I don't see anything wrong with parking your rollover IRA(s) in a credit union, but don't invest in a time deposit of more than 6 months. We'll hope that within 6 months you'll know what you want to invest in for the longer haul.

3. Educate yourselves about IRAs and 401(k)'s. A good starting point is http://www.fool.com/money/allaboutiras/allaboutiras.htm

4. Educate yourselves about investing. As has already been pointed out, IRAs (and 401(k)'s to a lesser extent) are just forms of ownership. They don't determine the type of investment. For a good start at investment education, try the 13 Foolish Steps, available through the TMF home tab at the top of the page.

5. Once you know what you're dealing with, you'll be able to do so Foolishly. In the meantime, relax, and all best wishes for your upcoming marriage.

TMF ExRO
Phil Marti

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Author: MasterQi Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22092 of 75381
Subject: Re: rolling over 401k to ira Date: 5/21/2000 11:22 PM
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Well said, Phil!

MasterQi

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Author: jfp2104 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22096 of 75381
Subject: Re: rolling over 401k to ira Date: 5/22/2000 1:00 PM
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If your new employers have a 401k you can roll your old one over into it. Then if you do want money for a house you could borrow rather than deplete your account. Another option is an IRA through a broker where you can pick the investment vehicles. I have one with FirstTrust and am pleased with it. Many of the on-line brokers have them and you could become a day trader with your IRA's but I don't recommend that.

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Author: bruceg17 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22101 of 75381
Subject: Re: rolling over 401k to ira Date: 5/22/2000 2:43 PM
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Perhaps you can help me with an additional question. I too have a 401k that I would like to rollover. I don't have much money in it and would prefer to have in an n investment that I can continue to contribute money for the additional compounded growth. My question is can I roll this into my existing Roth IRA and if so what are the tax remifications? I am only 29 so I have a lot of years to watch this grow. Thanks in advance for your help.

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Author: jrr7 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: 22102 of 75381
Subject: Re: rolling over 401k to ira Date: 5/22/2000 3:03 PM
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because we're just throwing money away on renting.

If you weren't renting, where would you have stayed?

As long as you have four walls and a roof (better than like 10-15% of the planet) I don't think it's fair to say you are throwing money away. It always costs SOMETHING to put a roof over your head.

And the amount of "expenditures with nothing lasting to show for it" only goes UP when you buy a home. (mortgage interest, furniture, appliance repair, snow removal, landscaping, property taxes etc. are all included in your monthly rent, but when you OWN you become the landlord and have to take care of all of these and then some)

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Author: jrr7 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: 22103 of 75381
Subject: Re: rolling over 401k to ira Date: 5/22/2000 3:11 PM
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Bruceg17,

You should probably click on "Post New" and repost under a new subject, as people who are viewing this board in the Threaded mode won't see your post otherwise.

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Author: daisyi295 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22156 of 75381
Subject: Re: rolling over 401k to ira Date: 5/23/2000 11:42 PM
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yes, both mine and my fiance's 401k are requiring that we do something with our money since we're no longer employed with those employers. we know that we will be putting them into separate ira's - but when you say put into an ira without tax withheld i'm not exactly clear on how that works. i read on the section on ira's you referred me to about the roth ira-is that what you would recommend for us both? I understand when you are in a 401k they ask you if you want before or after tax deductions, and i opted for before tax as it would make my taxable income less. i'm not sure on what my fiance did-before or after. but when you're in an ira do they take it out of your payroll check or checking acct on a monthly basis and do you advocate roth ira for us? thanks for clarifying what is meant by "wihtout tax withheld" for me. thanks, robin

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22164 of 75381
Subject: Re: rolling over 401k to ira Date: 5/24/2000 3:24 AM
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<< when you say put into an ira without tax withheld i'm not exactly clear on how that works. >>

If the plan cuts a check to you, they will withhold 20% for Federal income tax. If you want to do a rollover, you'll have to come up with the cash to replace the withholding for deposit in the IRA. If the 401(k) transfers the money directly to the IRA custodian, or physically through you by a check made payable to the IRA custodian "FBO" you, there's no withholding required.

Your chosen IRA custodian can assist you in completing the transfer.

TMF ExRO
Phil Marti

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Author: jrr7 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: 22166 of 75381
Subject: Re: rolling over 401k to ira Date: 5/24/2000 12:14 PM
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yes, both mine and my fiance's 401k are requiring that we do something with our money since we're no longer employed with those employers.
For reference, "something" includes:
- take the money and run (the IRS takes half, though)
- Move to a new employer's 401K plan (apparently you don't have one
- Move it to a "conduit IRA" (sometimes called a rollover) This is what you should be doing.

we know that we will be putting them into separate ira's - but when you say put into an ira without tax
withheld i'm not exactly clear on how that works.

If you say "Give me a check made out to me", the 401K administrator is required to send 20% to the IRS before you see anything. If you say "Give me a check made out to XYZ Mutual Fund" they don't have to deduct the 20%; they give you a check for the full amount. Obviously you want the check for the whole thing--so make sure the 401K person does it right!

i read on the section on ira's you referred me to about the roth ira-is that what you would recommend for us both?
You have to be in a conduit IRA before you can be in a Roth IRA. Get your conduit IRA first (you'll be able to switch to a Roth in the future if you so decide).

I understand when you are in a 401k they ask you if you want before or after tax deductions, and i opted for before tax as it would make my taxable income less.
Good choice. Another compelling reason for "before tax" is that it makes bookkeeping a lot simpler.

but when you're in an ira do they take it out of your payroll check or checking acct on a monthly basis
Most IRA custodians have an "automatic investment plan" whereby they take money out of your checking account however often you want. Actually, though, if you have a spare $2000 it's best to contribute it as soon as you can after Jan 1. Remember that you can only add in $2000 a year to your IRA.


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