No. of Recommendations: 0
pgray007: "I recently switched jobs, and have about $50K in a 401(k) plan from my previous employer. I was deluged with offers from T. Rowe Price (where the account is held) to rollover to one of their IRAs. My new employer also offers a 401(k), which I have signed up for, but the fund choices are pretty bogus so I don't want to rollover to that account. I'm currently 26, with about $120K in income, and will be married in August of this year.

I'm planning on contributing to the new 401(k) up to the employer match.

My soon-to-be spouse is 22 with about $30K in income in 2005. She is a teacher and does not have access to a 401(k) plan, just a defined benefits pention plan, that we'll likely never see since we are planning on moving in 1-2 years.

After 2 years of hard work, I've paid down my debt and we have 3 months expenses stashed with ING direct, and are now ready to take the next steps towards foolishness.

My questions are:

*Should I rollover the 401(k) to Vanguard and into a Roth IRA? As I understand it, this is possible without penalty, although I'm confused as to how I can dodge the tax man on the contributions I made to the account on the front end, and then dodge him again on the backed with the Roth."

I will not address the Vanguard question. As another posted noted, without penalty does not mean without income tax being due. In addition, at first glance it looks like your income might be to hire to convert a regular IRA to a Roth IRA.

"* Independant of the previous comment, I'm planning on doing a Roth for my fiancee and I (two accounts) at Vanguard, and dumping $3k each from our ING "slush fund" into the 2 accounts for the 2004 tax year. Any reason I shouldn't do a Roth?"

Your income appears too high, as a single, to contribute to a Roth for 2004. Your joint income will be borderline (bit probably just under the cutoff for a Roth for MFJ status). I do not mean to be a pessimist or a jinx, but sht happens, so I would not open the 2004 Roth for you that presumes you will be married on 12/31/05 (i.e., do not count your chickens before they hatch). Your fiance probably should do a Roth IRA instead of a regular if she can afford the current taxes.

"I assume I can open a fresh account and still qualify the contributions for tax year 2004?"

Until 4/15/05; just give very clear instructions to your trustee, and triple check the paperwork that it gets properly identified.

"Will 401(k) contributions offset our taxable income for Roth qualification purposes in 2005? I think we can just duck under the $150K celing if we juice up contributions a little bit."

I beleive that it is MAGI and not TI that is the issue. If the board FAQ does not address this issue, I am sure that TMF must have some articles posted.

"* Is an ING Orange account (at 2.35%) the best place to stash the emergency cash fund (the 3 months expenses)? Should that be diversified or reallocated somehow?"

Probably yes in terms of return on safe, liquid investment. In terms of convenience, I cannot answer for you.

Regards, JAFO
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