Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Take the tax penalty of 10% and increased income taxes on the old ROTH and reinvest in individual stocks

aj has already pointed out that you've wrongly some terms that mean specific things, so I'll skip that.

However, does your 401k have any stock funds that you can invest in? Although I much prefer (low cost) funds to individual stocks, there is a strategy called "core and explore," which involves putting most of your stock money into a US index fund (like SP500 or total US market), and adding satellite investments like international fund or individual stocks. If your 401k has a US large cap index fund or total market index fund, that makes a much better investment than paying taxes now (vs. *never* in a Roth) plus 10% penalty. Also, any gains and dividends in your new outside account would incur taxes, whereas the Roth money is tax free.

Other advantages to a Roth:
-No RMD for original owner (or spouse who inherits it)
-Does not create taxable income that drives social security from untaxed to 85% taxed
These are a couple reasons why you see people converting IRAs to Roths in their 60s.


This option makes more sense to me because I will have the opportunity to see more growth in individual stocks than in mutual funds.

When someone makes this claim, I ask: What advantages do you have over people who invest professionally with enormous research resources and organizations? I can think of some that might be the case, but owning individual stocks means some will be above some index you're using as a benchmark and others will be below. It's easy to let the few outperormers stick out in your mind and forget that overall you're underperforming.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.