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Wayne02,

You wrote, I have ~$75,000 in a 401K through American Century, with my previous employer. Since I have not been employed this year I have made no contributions to it or any other retirement plan. In addition, with the passing of my mother I've been scrambling to get the estate in order before year end. Finally, I now have a moment to figure out what to do with this 401K (if anything).

If you've not been employed this year, you probably haven't earned any income. You cannot make contributions that exceed your earned income in any case.

You must still be employed to contribute to an employer's 401(k) plan.

Since you're married, you may be eligible to contribute to an IRA under the spousal allowance; but you still cannot contribute more than your combined AGI.

Also, American Century is offering a rollover IRA option and I'm debating on whether to take it or not. I really have not had any complaints with the plan per say. Other then, from a psychological standpoint I would like to make a "complete" break from my previous employer and this 401k is the only thing left.

You don't have to move a 401(k) account that has more than a $5K balance from a previous employer's plan, so long as that employer does not terminate their 401(k) plan. Once the balance exceeds $5K, the option to move the funds becomes yours to make and not theirs.

Moving your 401(k) account assets to a Rollover IRA has advantages and disadvantages -- you need to learn what they are before making a decision. You also don't have to stay with your former employer's fudicuary. While I have no complaints with American Century, I think you should investigate other IRA providers -- you're sure to find some that provide more options at a lower cost.

Finally, On another note. Should I make a last minute contribution to either this plan or the rolled over IRA before year end? Realistically, would there be enough time to roll over the 401k to an IRA AND make a contribution before year end? Or should I make the contribution with the existing plan and worry about rolling it over in January?

You can't contribute to a 401(k) plan once your employment has been terminated. I've already mentioned limitations on contributions.

You have until April 15th, 2003 to complete 2002 IRA contributions. Take your time with any choice to do a Rollover IRA. There are no tax consequences associated with a rollover, so there should be no pressure to complete one before the year-end.

One more thing: If you do choose to do a Rollover IRA, consider converting the account to a Roth IRA. Since you're going back to school, you won't be making that much money over the next few years. You can convert the funds incrementally from the Rollover IRA to the Roth IRA during your education. This will let you spread the taxes associated with the conversion out over the next 4 years while your income is relatively low.

BTW: Since there are tax consequences associated with a IRA->Roth conversion, this may be one reason for hurrying along a Rollover before year-end, though I doubt you still have time enough to get one done.

- Joel
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