My ex-employer just sent me a check for my 401K there. It has been about 3 years since I have worked there and they sent a letter that they could distribute funds if the total was under $5000.00.I don't want to cash the check. I have no idea what to do to get this back as protected retirement money.I have no current 401K so I have heard the best place I can roll it into is an IRA. I am totally ignorant in this area and need to know what organizations to contact.Am I going to pay some fees when they accept this?What do I need to do to get this money back into Tax Deferred status?
You select a custodian, establish an IRA, endorse the check to the new custodian and send it to them. Actually you can use the money for 60 days, but you'd just as soon deposit the check directly in your new IRA. Next problem is taxes. If the old 401k administrator sent check made out to you, 20% federal taxes had to be withheld. If you are under 59 1/2 this is a premature distribution and the distribution also subject to a 10% penalty, which you will avoid by putting the money immediately into an IRA. The check stub should indicate taxes withheld. You need to make up that money to avoid having the amount of taxes treated as a distribution. When you file your taxes of course the amount withheld will count as tax paid, and we are late enough in the year so you don't have to come up with the extra money to replace the tax deducted from your IRA unwanted distribution for a long time, and it isn't a huge 401k account. So pick a custodian for your new IRA. You lose the right to make the rollover 60 days after check was issued by the 401k company. Good luck! Chris
What are the names of some of the Custodians I can contact?What ones do anyone suggest?I really have no idea what companies do these things or even what type of organization that does these things.
I have noticed ScottTrade for awhile and have been interested in them. I did not know if I could do a rollover with this kind of company or not but I have called them and it looks as though I can.I am really ignorant on this stuff including the basics so I realize my questions are pretty basic.I still would appreciate more answers and comments on the previous questions and statements I've made.I also have another question to add. Will I be able to add personal money to the account in the future? Or do I need another account for that?
Right now, you just want to minimize the chance that the custodian messes up this transfer and tax situation for you, so pick a company that will answer your questions in person or over the phone. In my experience Charles Schwab has been good about this sort of thing.Once you get the money into an IRA account, you can change it to another company later - then pick a company with the lowest fees or best investment choices.Just a quick 2 cents, probably only worth 1 cent and a grain of salt...-Zorkmid
I am really ignorant on this stuff including the basics so I realize my questions are pretty basic.Here's my suggested course of action.Step 1. As others have noted, you're under strict time limits to complete the rollover. I suggest you go to your bank and establish an IRA to receive the proceeds. (Don't forget to make up the 20% that was withheld.) Do not let the bank talk you into investing in anything beyond a 6 month CD. You just want to park the money while you figure out what you want to invest it in.Step 2. Learn about IRAs. An excellent starting point is All About IRAs: http://www.fool.com/money/allaboutiras/allaboutiras.htm.Step 3. Figure out what you want to invest in. If you haven't done so already, the 13 Foolish steps, available through the Fool.com homepage, are an excellent tutorial.Step 4. Once you figure out what you want to invest in, choose your IRA custodian and, when the CD at the bank matures, roll the money to your new custodian and invest away.TMF ExROPhil Marti
Phil's advice is good. Schwab is a good choice. Janus is a good choice. Your investments would be limited to mutual funds and you'd have to get a prospectus before investing, which would use up some time, and you don't have that much. Vanguard is a good choice. Your bank is right there close, I hope. You don't want your retirement tied up in CDs for a long time, but 6 months is OK. Your banker should also make it clear you have to make up that 20% that was withheld, and would be there to hold your hand a little if you need that. So off to the bank with your check, and write Vanguard and Janus for prospectuses (Janus Fund, Janus Worldwide, for starters; Vanguard S&P 500 index and whatever other ones you want to look at. There is a list of mutual funds in your daily newspaper, probably. And you have time then to go to Fool School. Best wishes, Chris
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