I am new to having a retirement account besides being completely new to investing so I would really appreciate any advice you have on this...I left my job in 2001 in order to attend college full time last fall. I have a 401k from the previous employer but I do not know what to do with it. I don't know if it matters but the end of year statement says I am 100% vested. I haven't touched the money but I am not contributing to a retirement plan right now either.Should I just leave it alone in the account or should look for a Roth IRA plan to roll this into? College mom
Greetings, College Mom, and welcome. You asked: I have a 401k from the previous employer but I do not know what to do with it. I don't know if it matters but the end of year statement says I am 100% vested. I haven't touched the money but I am not contributing to a retirement plan right now either.Should I just leave it alone in the account or should look for a Roth IRA plan to roll this into?For details on how to take a distribution from your 401(k), see my article "Transfer or Roll Over Your 401(k)" at http://www.fool.com/retirement/retireeport/2001/retireeport010312.htm. Basically, provided you have at least $5K in that 401(k), you may leave it there. If you have less than $5K, then your employer may require you to take a distribution. Sometimes amounts less than $5K may stay in the plan, it's up to your employer. If you must take a distribution, then you may take the money and pay income taxes (plus a 10% penalty if you are younger than age 59 1/2). Alternatively, you may transfer the sum to a traditional IRA only. A direct transfer from the plan to a Roth IRA is not allowed; however, once the money is in the traditional IRA and provided you meet the AGI requirements to make such a conversion, you may then make a direct transfer from the traditional to a Roth IRA. If you take that action, all previously untaxed money in the transfer becomes taxable, but it will not be subject to any penalty for early withdrawal. For some considerations on doing so, see my article "IRA Conversion Considerations" at http://www.fool.com/retirement/retireeport/2001/retireeport011112.htm.Read the links above, and then decide what's best for you, leaving the money in the plan or transferring it to an IRA (traditional and ultimately a Roth).Regards..Pixy
The decision about whether to rollover your 403(b) money to a traditional IRA should be made based on:- what it would cost you in fees and penalties to exit any 403(b) investments that have those fees- whether investments in the 403(b) have high maintenance or annual fees- whether you can get better investments in the 403(b) or on your own. In some 403(b)s, all the investment options are much worse than what's available to the general public; in others the investment choices are much better than retail.It's a separate decision as to whether to convert a Traditional IRA to a Roth IRA. This should be based on your expectation for whether your tax rates will be higher in the future.The best time to convert is when you can scrounge up enough cash to pay the taxes, but are in the lowest possible tax bracket.
Sorry, in the previous post I meant to say "401(k)"; instead I said "403(b)". The rest of the post is correct.
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