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Author: scottfm Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: rollover IRA treatment Date: 8/10/2004 9:21 AM
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Under what circumstances, if any, is it possible to contribute additional money to a Rollover IRA where the funds originally came from a 401k?

Are Rollover IRA's basically considered to be Regular IRA's with regards to the annual contribution limits, criteria for eligibility, etc.?

Last question... I'm in a situation where I'm starting a new job next week. Once I'm eligible for their 401K (90 days), I'm considering rolling over a rollover IRA I have as well as my previous company's 401K just to make the bookkeeping easier on me. Is this a good idea, or would I be better served by leaving the money spread out? I realize this is a case-by-case situation, but any general advice would be appreciated.

Thanks,

Scott
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72791 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 9:55 AM
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Under what circumstances, if any, is it possible to contribute additional money to a Rollover IRA where the funds originally came from a 401k?</i.

Are Rollover IRA's basically considered to be Regular IRA's with regards to the annual contribution limits, criteria for eligibility, etc.?


It used to be that you had to keep rollover IRAs separate from other IRAs if you thought that you might want to roll the funds back into another type of retirement plan such as a 401(k) at a new employer. However, the rules have been changed so that you can now roll funds from just about any retirement plan into any other provided the plan allows it.

Your rollover IRA can accept new contributions subject to the usual rules for IRA contributions (annual maximums, income limits for deductibility, etc.)

Last question... I'm in a situation where I'm starting a new job next week. Once I'm eligible for their 401K (90 days), I'm considering rolling over a rollover IRA I have as well as my previous company's 401K just to make the bookkeeping easier on me. Is this a good idea, or would I be better served by leaving the money spread out? I realize this is a case-by-case situation, but any general advice would be appreciated.


Combining the plans to minimize paperwork is often desirable. Leaving 401(k) money at an old employer is usually foolish (small f) because it is more likely that you'll lose track of it (or they'll lose track of you). IRAs generally provide more flexibility in investment choices though some 401(k) plans are better than others in this regard.

The key differences that you should keep in mind between IRAs and 401(k)s are that you can use up to 10K of IRA money (but not 401(k)) for a first time home purchase without paying early distribution penalties (though tapping your retirement funds should be strongly discouraged).
If your plan allows it, you can borrow from your 401(k) (but not your IRA). However, 401(k) loans are payable in full if you leave the job for any reason. Unpaid loans are subject to income tax and penalty. Penalty-free distributions can begin at age 55 from a 401(k) if you are no longer working for the company, but not until 59 1/2 from an IRA. 401(k) accounts are somewhat better protected from creditors than IRA accounts.

If it were my money, I would definitely move the old 401(k). I would move it to the rollover IRA because I value the greater investment flexibility more than the added creditor protection and possible earlier access. I have no intention of tapping my retirement funds prior to retirement. Of course, you should make the choice which is most comfortable for you.

Ira

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72792 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 10:18 AM
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However, 401(k) loans are payable in full if you leave the job for any reason.

When a 401K loan is due depends on the plan. Some demand full payment within a few days and others permit loans to repaid on their original schedule after separation from your employer. It is necessary to check your plan details before considering a 401k loan.

Debra

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Author: scottfm Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72793 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 10:53 AM
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the rules have been changed so that you can now roll funds from just about any retirement plan into any other provided the plan allows it

Interesting... I have both a Rollover and a Regular IRA, both fully invested in the same fund with the same brokerage house (American Century). Suppose I could combine those even though I don't think it would buy me much. Unfortunately I don't qualify for any deduction as far as Reg IRA's go, so I wouldn't be putting any additional money in there. We currently max our Roth's out, though.

On the 401K, I think I definitely will roll the "old" 401K forward into something. Most likely my new employer's 401K. I share your intention to not tap the funds prior to retirement.

Thanks for the info!

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72794 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 1:20 PM
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When a 401K loan is due depends on the plan. Some demand full payment within a few days and others permit loans to repaid on their original schedule after separation from your employer. It is necessary to check your plan details before considering a 401k loan.

I wasn't aware that 401(k) plans could allow repayment on the original schedule after employment ended. Thanks for the information.

Ira


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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72795 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 1:22 PM
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Interesting... I have both a Rollover and a Regular IRA, both fully invested in the same fund with the same brokerage house (American Century). Suppose I could combine those even though I don't think it would buy me much.

The only things it would buy you are; (1) one less set of statements to keep track of and (2) possibly reduced fees if your investments are in load funds and the combined balances exceed one of the expense breakpoints.

Ira

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72796 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 2:10 PM
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irasmilo:

<<<<When a 401K loan is due depends on the plan. Some demand full payment within a few days and others permit loans to repaid on their original schedule after separation from your employer. It is necessary to check your plan details before considering a 401k loan.>>>>

"I wasn't aware that 401(k) plans could allow repayment on the original schedule after employment ended. Thanks for the information."

That was the norm when 401-k loans were first allowed, but plan adminstrators got tired of teh hasle of getting live checks from multiple, former employees (instead of simple payroll deduction, done electronically for employees) and lobbied to have the rules chnaged.

Regards, JAFO




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Author: scottfm Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72797 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 2:26 PM
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The only things it would buy you are; (1) one less set of statements to keep track of and (2) possibly reduced fees if your investments are in load funds and the combined balances exceed one of the expense breakpoints.

If I'm undertanding all of this correctly, another option would be to roll both the rollover and the regular IRA's forward into a company 401K, right?

Just supposing here...

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Author: sunflare Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72798 of 121061
Subject: Re: rollover IRA treatment Date: 8/10/2004 2:50 PM
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However, the rules have been changed so that you can now roll funds from just about any retirement plan into any other provided the plan allows it.

And that part right there is the operative one. I tried to roll my Rollover IRA (with funds that came from a SIMPLE IRA from very small company I left and a traditional 401(k) from a company that ceased to exist) and found that I couldn't. My current company needed some sort of verification of tax status for the money that my Rollover company (Fidelity) would not give. I was told that I would have to contact the old company(s) for that verification, but as one is no longer around....

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