Hello all, wonder if i can get some help with my predicament.I am considering leaving a part time job and need to roll over my 401k. Should i roll it into another existing 401k with my full time employer, or, is it a better idea to roll it into an existing Roth IRA that i already have. I am a little unclear on the tax issues and what to do. Retirement is a long time off, so that is another factor. Thanks for any help.
Unless you want to pay taxes on the money in the 401(k), you will need to roll it over either into your fulltime employer's 401(k) or traditional IRA. Remember, this must be done within 90 days (or is it 60, I can't remember). Time is of the essence.Donna
Welcome soxsweep. Glad you could join us.Depending on the balance in your 401K account, you may be able to leave it where it is for now or even until retirement (usually with a balance over abt $4K), or you can roll it over to an IRA and from there either roll it into a future employers 401K or convert it to a Roth and add it to your existing Roth. Roth conversion requires paying income taxes on the amount converted, but all of the other rollovers are tax free. Your money continues to grow tax free.Especially if the amount involved is small, the annual maintenace fees charged for many accounts and sometimes for small balances work against the idea of having a separate IRA. So best is either roll it into a future employers 401K or pay taxes and convert it to a Roth.If the balance is somewhat larger, say more than about $2K, many would prefer the Roth conversion over the 401K because it gives you great freedom to select a wide variety of investments or move your funds to a new custodian if the need arises. With the 401K, your funds are often trapped in the plan you are offered until you change jobs.In order to convert it to a Roth, contact your Roth IRA custodian for instructions. Usually there is some paperwork to fill out, and they will do the rest.Good luck.
I don't know what you should do, but one has three options.You might want to read http://www.fool.com/retirement/retireeport/2001/retireeport010312.htm?ref=60401kYour three options are:Keep it there By law, if your 401(k) balance is at least $5,000, you must be allowed to keep your funds in that 401(k). However, if investment returns cause the balance to go under $5,000, the 401(k) custodian can force you to remove funds or mail you a check, minus withholding.Roll it into the current employer's plan If you must move your funds and you want ERISA protection from creditors, this may make sense. It may also make sense if you are happy with the current employer's offerings and expenses.Roll it over to an IRA A "Rollover IRA" is a Traditional IRA that is funded with "qualified funds" (such as from a 401(k)). Once the funds are in a "rollover IRA", you can later elect to roll it into the current employer's 401(k) plan, or invest it, or do a Roth IRA conversion.Generally, once you decide where to have the funds, it is best to start with the new custodian and make arrangements to have the money rolled over or transferred to the new custodian. By doing a "custodian to custodian transfer" of funds instead of being a middle man, you eliminate any withholding that might take place.If, on the other hand, you just walk in to the old custodian and ask for a check, if they withhold some of the funds for taxes, and you decide to roll it into a "Rollover IRA" or to the new employer's 401(k), you have to roll the whole amount before the tax withholding, or the shortfall will be considered an "unqualified distribution" (subject to both income taxes and 10% penalty, plus state income taxes and state penalties).If you convert a "Rollover IRA" to Roth, you will owe income taxes on the amount of money converted. (Actually, all funds converted except for the part represented by the tax basis, which would be the after-tax contributions. If all contributions were pre-tax, the tax basis is $0 so the total amount converted is subject to income taxes.) If you do this, be sure to take steps so that you aren't subject to under-withholding penalties.Actually, there is a fourth option: take the money from the former employer's 401(k) plan and pocket it. However, that means you will pay income taxes and 10% penalty (plus state income taxes and state penalties) on the full amount. By the way, if the former 401(k) custodian sends you a check and you don't want to pay tax and penalties, you have 60 days to do something with those funds, be it a "rollover IRA" or current employer's 401(k) plan; on day 61 it will be considered an unqualified distribution, subject to tax and penalty.
thanks everyone, very helpful
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