401(k) Rollover to IRA: How to Transfer Your 401(k) Fund
By
Pinyo, on April 25, 2011
When you are leaving a job where you have contributed to a 401(k) plan, you have three options: cash out your 401(k), keep it in your current plan, or move it to another qualified retirement account. A qualified retirement account could be your new employer’s 401(k) plan, a Traditional IRA, or a Roth IRA. The movement of your 401(k) to this account is called a rollover.
Why You Should Rollover Your 401k to an IRA
Before we discuss why 401(k) rollover to IRA is the best option, let’s look at why you should not cash out your 401(k).
Cashing out your 401(k) is a bad idea
Typically, this is the worst thing your could do to your 401(k) fund. When you cash out your 401(k), you’ll be taxed on the withdrawal. The combined federal and state taxes could be significant due to the higher marginal tax rate that the withdrawal will bump you into. Also, you may be subjected to a 10% early withdrawal penalty if you are not yet 59 1/2. Assuming an effective combined federal and state tax rate of 35%, a $100,000 cashed out of 401(k) could cost you $45,000 in taxes and penalty leaving you with only $55,000.
401(k) rollover to IRA is usually the best course of action
Unless your current employer’s 401(k) plan is great — i.e., excellent investment options and low fees — keeping your 401(k) with them is usually not the best option. And unless you know for certain that your new 401(k) will be great, 401(k) to 401(k) rollover might not be that great either.
With an IRA, you can usually lower your investment expenses and gain access to a much wider variety of investment options. You can even switch to a different discount brokerage firm to take advantage of different investment options, tools, features, prices, fees, etc. Additionally, you have the option of converting your 401(k) to a Roth IRA, which allows your retirement savings to grow tax-free.
Tax Implications
These are some answers to the most commonly asked tax questions when it comes to 401(k) rollover:
- 401(k) rollover to another 401(k) plan and Traditional IRA does NOT impact your taxable income, because they are all pre-tax accounts.
- 401(k) rollover to a Roth IRA does increase your taxable income, and potentially bump up your tax marginal rate into the next tax bracket.
- If you anticipate high taxable income this year, it may be worth while holding off on your rollover to a Roth IRA. You can either keep your money in your current employer’s plan (if they allow a rollover at a later date), or rollover to a traditional IRA then later convert it to a Roth IRA.
- Rollover into a Roth IRA does not increase your Modified AGI, so your ability to contribute to an IRA should not be impacted by the rollover. (See clause 1b under Modified AGI on the IRS.gov web site)
How to Do a 401(k) Rollover to IRA
Now that you’ve decided to go with the 401(k) rollover to IRA option, here are the main steps on how you can accomplish the rollover.
- Open an Individual Retirement Account (IRA) with any financial institution that offers an IRA. Usually, this end up being one of the many discount brokers. Here’s a guide to help you choose a discount broker. In general, you want to pick the investment company that offers the type of investments you want that are accessible at low trade commissions and fees.
- Inform your employer that you want to do a 401(k) rollover to IRA. Make sure your employer makes the check payable to the investment company that you choose. This is call a trustee-to-trustee transfer and it helps you avoid the automatic 20% tax withholding.
- Invest Your Money. Once the transfer is complete, your money will be sitting in some sort of interest bearing investment such as a money market account that earns very little interest. You will have to invest your money according to your asset allocation plan. The exact investment options you have will depends on your investment company. In general, you want to invest in a well-diversified portfolio of low cost and passively managed mutual funds or ETFs.
If you are facing this decision, consider performing a 401(k) rollover to IRA to take advantage of the opportunity to lower your costs and gain greater flexibility. Remember to research the investment company well before you open an IRA with them, and do your due diligence when selecting your investments. If you are uncertain, it’s usually a good idea to consult a professional to help guide you through this process and answer your questions.
Alternatively, you can use the following service to help with your rollover.
Betterment offers a set and forget investment service that will let you rollovers into both Traditional and Roth IRAs. With a fee of only 0.15% to 0.35%, Betterment empowers you to put more of your hard-earned income toward a comfortable future.
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Betterment offers a set and forget investment service that will let you rollovers into both Traditional and Roth IRAs. With a fee of only 0.15% to 0.35%, Betterment empowers you to put more of your hard-earned income toward a comfortable future.
IMO, converting to a Roth IRA may be a better option.
@Dave – This entirely depends on your age. For example, if I am 55 years old and have a sizable sum in my 401k, I wouldn’t want to pay all the taxes.
If you anticipate lower taxes in retirement, then ROTH may not be good. One should look into each individual situation to see if it makes sense.
Also to rollover is good idea in most cases. It is not good if
1) you dont control assets and just end up buying stocks and lose money
2) you have very low cost index or passive funds in current 401k.
Some great point you made here. In fact I’m right in the middle of a “rollover” and I was able to put it in a Roth IRA which I’m much happier about. Let’s hope my money keeps growing like it did last quarter 32%. YEAH!
I was laid off a few years ago. I had a job inther interim and now have been employed almost a year at my current place with a good future ahead of me. I now have 3 401K plans. I have left the prior 2 where they were since I was unsure of my future and they seemed safe for the moment. I am not paying any fees that I know of for any of them.
Should I leave things as is? I do not wnat to rollover into the current 401k just in case. Can I move them into an IRA? Should I? What is the advantage/disadveanges to this?
thanks
@TLD – It depends on what you want to do. Rolling over your 401(k) into an IRA will give you more investment options and more control over expenses. Additionally, you could consolidate the two 401(k) plans and your other IRAs into one account — this will make it easier to manage and you don’t have to worry about losing track of who managing your 401(k) plans.
I’m fully vested with the company I’m leaving. If I go with the lump sum distribution I will lose close to $3,000 in federal and state plus another $1,000 come 2011 return. Also I still owe on a loan under $1,000 in which I will be penalized 20% on the offset and another 10% come 2011 return. Choosing the rollover IRA let’s say 20-80 withdrawal of funds, all these charges will remain except the 20% on the loan. Okay my thing is I have a small business(registered clothing line) in which the money will be used for. Is there a better option to withdraw my 401k without being taxed for this purpose.
@Reggie — I don’t think it’s wise to mix your retirement fund with your business. If I were to be in your situation, I would take a look and see if I could find a business loan for my business (as well as cover the payoff amount on the 401k loan).
If you can secure this loan, use it to pay off your 401k loan and rollover your 401k to an IRA. This way, you preserve your retirement fund and avoid any associated taxes and penalty. Additionally, you might be able to deduct interest paid on your business loan.
Can you have a roth IRA & 401 K simultaneously? I have my funds from my Ex job that I plan to roll over to roth IRA.
Can i Still continue to have my 401K at the current Job? Can I invest in both every year?
Should i consider rolling over to roth IRA in this case?
@Arch – Yes you can have both Roth IRA and 401k simultaneously. Yes, you can have 401k at your current job. Lastly, yes, you can invest (I think you mean contribute money) to both every year, but subject to the phase out limitation outlined in this article: http://www.moolanomy.com/4172/.....on-limits/
Question – When you do a rollover to an IRA from a 401k are you still taxed before the money is put into the new account or is the full amount transferred to the IRA
@Frank – If you do a custodian to custodian transfer (or trustee to trustee transfer), then there’s no tax withholding. If the check is made out to you, then your 401k administrator will withhold 20%. If you do not deposit the check in 60 days, you will be subjected to a 10% early withdrawal penalty.
Also, if taxes has already been withheld and you have a check that’s 80% the original 401k amount, you have to deposit the remaining 20% from your own fund. Otherwise, the 20% will be considered an early withdrawal and is subject to a 10% penalty.
You might want to talk to your 401k administrator and see if they could help you make it into a trustee to trustee transfer.
I have $6,000 in a 401K from a previous employee and would like to set up an IRA. I have no clue on what company I should have set up a account with and if i should just do a rollover IRA or a ROTH. I plan to keep this account for the long term commitment. I’m not looking to be to risky but would like to invest. Low fees are a plus! Please help!!!!!
@Stan – Since a 401k is a tax deferred account then rolling over into a Traditional IRA would probably be best for you (otherwise you’ll have to pay income tax on the withdrawal to deposit it into a Roth IRA). There are a multitude of quality IRA providers available. Do a little bit of research and find a company that offers the mutual fund mix that you’re looking for.
I was with a company and had a 401k and an IRA that I self funded with after tax money. Later, I started with a new firm. I work in the financial industry so I had to transfer all accounts. I transferred my IRA. Then I rolled over my old 401k into that IRA. So 5000 grand was in 401k, pretax money, and 5000 grand was in after tax, IRA money.
Now I want to make a 5000k IRA contribution for 2010. Which account do I put it in? A new roth IRA or the same IRA? Please help, please.
@Dan – If I understand you correctly, you now have a Traditional IRA account (created when you rollover your 401k into it) and a Roth IRA account. If that’s the case, you can contribute to either one (your choice), and their different tax rules apply.
How much you can contribute will depends on your income and filing status. You can read more about the limitations here: http://www.moolanomy.com/4172/.....on-limits/
Great article! Too many people leave money in the company 401k after they switch jobs, and neglect to convert to an IRA or Roth. Once you are established at a new job, that needs to be one of the first things you do.
As far as the IRA vs Roth, I prefer the roth as I want to minimize my tax burden after retirement. Sonce I have been putting away maximum contributions most of my adult life, I will likely retire in a higher tax bracket than I am in now.
Anyway, keep up the great articles!
Pinyo,
I got laid off last year and still have a 401k sitting there, I will be 54 this year and wanted to move the money to an IRA at my local credit union. My question is I am not earning as much as I did and(about $10 less an hour) so this are really tough, I get one more month of severence pay and then that stops. I would like to use about $7000 out of the 401K to pay off my car loan to save the payment of 373. a month. I know I need to pay @5000-6000 in taxes for the $7000 that I need. When I rollover the rest of the money will that be taxable also? Even if I roll it into an IRA.
Thank You
Joe
@Joe – I’m sorry about your job and situation. Before you decide to do anything, e.g., rollover, withdrawal, etc.; please consult a tax or financial planning professional.
First, I believe there is a way for you to withdraw from your 401k penalty-free starting at age 55.
Second, I believe both 401k and IRA have hardship withdrawal provisions that allow you to withdraw the money penalty-free.
Both of these have some very strict rules that you must follow. I am not an expert in these areas so I suggest you seek out a pro.
When you roll-over a 401(k) to an IRA or Roth-IRA what exactly happens? I have three 401(k)s from past companies in their stocks which are way down. So let’s say I have 100 shares of stock bought at $100/share ($10,000). Now the stock is only worth $50/share ($5,000 if I sold). When I roll over (assuming I put it back in the same stock) will I now only have 50 shares as opposed to my original 100?
@Mominwantagh: When you roll over the funds it doesn’t cash out the shares of stock and repurchase them. If you had 100 shares, then when you roll over the 401k to the Roth IRA, you will have 100 shares in the Roth IRA. The value of the account is determined by multiplying the current share price by the number of shares. It does not work out the math to where you get a number of shares based on the original share price. Everything is calculated off of the number of shares you hold.
I am a 40 year old male leaving a job of 15 years to go to a job that will increase my salary about 20%. I have (2) 401k’s at my old job that have a total of $47k in them. Am I better off rolling them into an IRA or a Roth IRA? Why? Also I thought there was a maximum annual donation to a Roth, so if I go the Roth route, am I investing in multiple Roth’s due to the maximum annual donation?
One last thing–is it possible to take the money from these 2 existing 401k’s and somehow roll them into my existing whole life insurance policy? Or into an existing Roth IRA that I already have?
@Scott — In general, you’re better off rolling the 401k over into an IRA because you have more control. As for Roth vs Traditional, Roth is generally better if you can afford to pay the taxes on the $47k and you anticipate that your tax rate will be the same or higher in the future.
As for the annual maximum, it’s not affected by the rollover; however, it is affected by your MAGI (see: http://www.moolanomy.com/4172/.....on-limits/ ).
For the last part, I am certain you can’t rollover your 401k into a whole life insurance policy. I am not sure about the second part because when I rollovered by 401k, I rolled it into a new IRA account.
Hi,
I have a 403b plan with my current employer and switching to a 1099 JOb and will be making 200k. I want to roll over to an IRA that allows me to buy stocks. I understand I don’t qualify for a Roth IRA is that correct?
Once the IRA is set up is there a maximum limit of money I can put in the account and is it before tax or after tax? Once I’m eligible to take the money out I would be taxed like a 401k/403b?
What is the story with SEP plan is that something I would benefit from?
Are there such things as individual 401k plans with any benefits?
Thanks for your time Please advise
@MH: If you will be earning $200,000 per year as your adjusted gross income, yes, you will not qualify for a Roth IRA. The point where your ability to contribute to a Roth completely phases out for singles is $122,000 this year and $179,000 for married.
You can contribute to a Traditional IRA, but your ability to deduct the contributions on your taxes also phases out. For singles the phase out is complete at $66,000 and for married $110,000.
Here’s a few resources to figure out SEP IRAs and things like that:
1. http://www.moolanomy.com/2520/.....ss-owners/
2. http://www.rothira.com/blog/ta.....e-business
My company is converting to a new 401K provider. They are going to take all the money in the old one and convert to new options in the new one. Given that I will probably leave soon anyway, I was hoping to avoid this step. Can I convert the money to an IRA while I still work there – and before they take it for the new plan?
Linda:
If you are age 59 1/2 or older, you are able to do an in-service withdrawal (select: rollover to an IRA).
Hi, I contributed about 20K to my employer’s 401K plan… then my company got bought out and the newer company offered us another 401K plan and I started contributing to that…
I also hold a Roth IRA plan…is it possible to consolidate all of them into the existing roth 401K plan…
I plan to leave this employer soon so I’d want my money safe into an Roth IRA plan…
Is this possible?
@HSS: A Roth IRA is not the same as a Roth 401k. If you meet the income guidelines for a Roth IRA, then you can contribute money regardless. A Roth 401k, on the other hand, is an employer-sponsored plan. Your employer would have to offer you the option to put money into a Roth 401k.
Hi,
I currently have a 401K at my present job that I want to cash out. The plan our company has does not allow me to cash it out. Is it possible to roll it to an IRA and then cash out the IRA (with penatilies and paying taxes)? How long does the money have to sit with in the IRA before cashing it out?
Thanks!
@HSS – I think you meant consolidating into Roth IRA (but you said roth 401k). If you meant Roth IRA, then you either have to be older than 59 1/2 or wait until you leave your job.
@Briana – I am not sure about the answer to your questions, but have you considered borrowing from your 401k (I think most plan allows this) or see if you’re eligible for a hardship withdrawal?
I have a question of how long it should typicaly take to rollover a 401 K to an IRA account (such as a vanguard). I recently started a new job and I contacted the account manager of my previous employer 401 K plans about my desire for the rollover. He tried to dissuade me from that, as he earns a commission. I told him I was sure I wanted to do that and after some hee-hawing, he agreed to start the process and told me it would involve a lot of paperwork. I have waited two weeks and I haven’t received anything yet. I know a previous coworker from that same company who left the job in March and is just now receiving her rollover paperwork! Meanwhile, this account manager continue to receive a commission from our funds. I was wondering if there are firm legal guidelines about how long this process should take (ie: how fast should a company respond to a request to rollover retirement funds). I am just afraid that this is going to drag on for months and I would rather just get this process completed ASAP.
@Liliane – You should contact the Plan Administrator and ask for the Summary Plan Description (it should be spelled out there).
There’s also some legal advice that you might be able to use: http://www.avvo.com/legal-answ.....vity_title.
Hi, great article!
I have about 20k in my former employer’s 401k (managed through Schwab). My new employer does not offer a great 401k plan. I am 25 years old. Still unclear whether I should rollover my old 401k into a Roth IRA or Traditional IRA. I already have a traditional IRA account (ING) with just $1k that I set up a couple years ago.
Any advice would be greatly appreciated! Thanks.
@Danny – I think the decision will depend on your current tax bracket. If you’re in a high tax bracket (e.g., 25% or more), rolling over to a Traditional IRA is probably better because you don’t have to pay taxes in the $20k. If you’re in a lower tax bracket, going the Roth IRA route is probably the better option.
However, some people may argue that Roth IRA should be the choice because you’re still very young.
I have an ira account with a broker. Can I take some of that money out to set up another ira account somewhere else
Hi, I was working in the US until 2009 and now work for the same company but in a different country. My current balance in my 401(k) plan is about 18000. I was told by the plan admin that I had to keep the 401(k) as-is until I left this company. If I leave this company in 2012 outside US, what will be my best option – cash out? I will have zero income from other sources in 2011 and 2012 in the US. If I have aspirations to buy a low-cost home in the US, in that case, what will be the best option? Thank you for reading my query.
@thomas – Absolutely. You can ask your broker about the transfer. Depending on the broker, there will be fees involved.
@Sid – Even if you have zero income in 2011/2012, you still have to pay the 10% early withdrawal penalty if you do not meet the qualified distribution criteria. I don’t know your full financial situation, but in general, rolling it over to an IRA is the best option. If you decide to buy a home, there’s a special provision for withdrawing some of your money, penalty-free, to purchase a home.
I hope this helps.
Hi, I have the choice to roll over my previous 401K into a Roth IRA or Traditional IRA. I still am confused as to which would be a better choice. I only have 2000 in my previous 401K. My new employer will began a new 401K after 1 year of employment. Can you give me advice as to which is best with this amount of money?
Also, to my understanding, my 401K was invested into several funds. When this is rolled over to a Roth IRA or IRA, does it continue investing in the same funds or do I need to start over?
I’m pretty new to all of this, any advice would be appreciated! Thank you!
@Kelly – The choice depend on your age and tax bracket. If you are in the low tax bracket, e.g., below 20%, Roth is an attractive choice since it allows you to invest tax-free (but you have to pay income taxes on the conversion this year) — however, if you are in the higher brackets, the tax savings advantage of Traditional IRA might be better.
When you rollover, they will sell all of your holdings and send the money to the brokerage house where you open an IRA account (e.g., trustee to trustee transfer). Once the money is deposited into your IRA account, you have to invest the money according to your investment plan and the investment options available. If you’re a new investor, putting all of the rollover into a Vanguard Target Retirement Fund is a good option.
my position at work after being there 16 years was eliminated (given to a family member of the company) because of my salary there i was only able to contribute the minimum, but because of my age (55) i was able the last several years to make the 5,ooo $ catch up. the company never had a contribution to the plan.. i have about $ 40,ooo in there and have been off work since december.
i am not real savy as to picking funds etc, we had someone at work that kinda did that for the rest of us.. of course we all took a beating like everyone else a while back….
i should be starting with a new employer next week , a much smaller company with my salary about 40 % less than before and they have no 401 k plan as of yet….i do not think they will either for several years..
what should i do with the $$$ in the 401 k plan… i am single parent of two teenagers, and i have full custody of them for the last 10 years….
btw.. should i open a custodan acct for them ?
thanks
@mike – It depends on your situation, but it sounds to me like rolling over your 401k to an IRA (traditional) is the best option. You can invest in something simple like a Vanguard Target Retirement Fund.
Hello! My husband has two 401k plans from his previous employers. We are planning to rollover them to a traditional IRA. Do you think it is a good idea to rollover them to our credit union’s IRA? According to our credit union’s website, their dividend rate for IRA is 2.07% and the APY is 2.09%. Do you think this is good?
Thanks.
@Donna – I don’t know the specifics about your credit union and your finances, so I can’t make a recommendation. But in general, I prefer to have my IRA with a discount broker that offers a full array of investment products. You will have access to better and less inexpensive investments than you would typically get with a bank or a credit union — which in my opinion tends to overcharge for investment products. If you’re uncertain about what to invest in, my recommendation is to look into Vanguard Target Retirement Funds. The return is not guaranteed like an IRA CD, but it has higher investment return potential in the long term.
My company was just bought out and the 401k will be terminated. I will have to look for a new job in a month. I’m 45 yrs old and would like to rollover to an IRA but would like to also take out 30% to pay down debt and establish a emergency cash fund while out of work. For the sake of discussion, what would the 2011 tax and penalties look like if I take out 1/3 of $90,000 in a 25% tax bracket making $40,000/yr? If it’s too steep, I may just bite the bullet and keep it all in the IRA? Thank you in advance for any help you provide!
in reference to sept 9, 2011 reply
i am correct in thinking that if i roll by 401 k into a roth account, i will pay taxes ? are there any other penalities ? will i have access to the money immediately ? i thought i read i have to wait 5 years before i can touch it.. is this correct ?
If I’m going to roll over my 401K to a Roth IRA due to leaving the company does it follow that if a wait to time this roll over in a year where my income is at a much lower tax rate(due to being unemployeed etc)I will pay the loewer rate on the roll over? If I’m at 28% this year and rolloever the 401K to Roth I’d pay 28% on the roll over. If I wait until the following year where I may have income at a 15% rate does the roll over get taxed at that lower 15% rate in that year?
@jun – The penalty is 10%, so taking out $30,000 will leave you with approximately $20,000. I think the price is very steep. If I am in your situation, I’d roll it all over into an IRA — and remember this fund is protected from creditors (they can’t touch it). As for you debt, you might be better off consolidating it into a balance transfer credit card or Lending Club. You can search the blog about these two options.
@Mike – Yes, you will pay taxes because 401k is funded with pre-tax contributions and Roth is strictly for after-tax contributions.
There should be no other penalty. Consult with the broker where you’re opening your Roth IRA account and they can walk you through the process.
@Brent – That’s correct. You can rollover to a traditional IRA and later convert it to a Roth IRA.
You will be able to invest your money as soon as it is cleared in your Roth IRA account. The 5 years rule apply to penalty-free withdrawal.
In Feb, 2011, I made an institution-to-institution transfer with funds going from my company’s 401K plan into a traditional IRA account at my local bank. The bank categorized it as a ‘rollover’. Now in Oct, 2011, I would like to make another move of exactly the same nature. My bank says I can only do this once a year. Is my bank correct?
Thank you and I understand. But I was wondering about the tax rate the transfer would be taxed at based on the other income during that year. My understanding is that the roll over to a Roth is taxed at your standard rate that your other income would be taxed at in that year and the rollover amount is not figured to increase your rate to a higher bracket. The Roll over from 401K to Roth is going to happen, I just wonder if timing it in a low income year would provide the benefit of a lower tax on the roll over. Thanks.
@Dennis – I believe your bank is giving you false information. I have never been in the situation myself, so I recommend that you consult the broker whom you would like to transfer fund to. I have many questions answered by Charles Schwab, TD Ameritrade and Scottrade. You can ask them and they will guide you through the process (note: you don’t have to use them if you want to choose someone else).
@Brent – The first portion of your statement is correct: “the roll over to a Roth is taxed at your standard rate that your other income would be taxed at in that year”.
I am not sure about the second part: “the rollover amount is not figured to increase your rate to a higher bracket” — I think it is incorrect.
401K to Roth rollovers are pretty common. And I have seen pretty reliable info that a rollover is not meant to, or treated as an event that would increase your income in the year of a rollover to a Roth. It’s not a withdrawl just a need to transfer from an employer 401k to an existing personal Roth IRA and go from a pretax traetment to after tax.
The part that I havn’t found an answer to is how the existing ordinary income and thus tax rate comes into play for the tax on the rollover.
Timing it in a year of low income(unemployment)and thus a lower tax bracket would seem to be a no brainer if the rate on the rollover is taxed at the rate of your regular income that year.
Assuming that the rollover amount does not appear as income that year (pretty sure it doesn’t) then it would seem there is no other rate to tax the transfer at than that rate you were already going to pay that year based on regular income.
So if I earn 80K in the year I lose my job and I make the transfer in that year I pay 25% or 28%(whatever the rate is on that 80K). Or I hold the 401k at my company(my choice) into the following year and trandfer it that year where I may only have unemployemnt income and thus be taxed at a lower possibly 15% rate. The rollover if I suspect it works as I’ve read, then I pay 15% on the rollover and not 28%.
The question may be beyond the knowledge or scope of this message board. Thanks for all the input.
Brent,
A rollover from a 401(k) to a Roth IRA is taxable as income. If you rolled it to a *traditional* IRA, then it would not be taxable. And yes, this also affects your tax bracket.
This part of IRS Publication 590 may be helpful: http://www.irs.gov/publication.....1000231036
Was considering the rollover of a 403B account to an IRA
I cannot truly see any advantage to this other than my own “control” of funds– unlike I have now with my employer account.
Given the nasty economy of late — one wonders of any positive gains actually in keeping funds in the market at all! Perhaps buying a good race horse may be my option.
I am 29 years old and have a 401k at my current employer as well as $30,000 in another 401k at my previous employer. Given my age and tax bracket (28%) should I roll my old 401k into my current one or do an IRA?
My husband retired 6/30/11 with about $80k in a 401k. He will be rolling it over into an IRA but my question is will the amount he gets be figured on the rollover date, i.e., value as of 10/28/11, or the price at the end of the previous quarter, 9/30/11. When looking at the value in their website, the amount in the account only changes every quarter.
If I have rolled over a former employer 401K to the current employer 401K plan is the money from the former employer available to rollover again to an IRA while I am still employed at the current employer?
I am 31 and looking to roll over my 401k from past employer of about $40k into an Roth IRA, however with my new employer I make more the modified agi, so does this mean I will only be able to roll over and not contribute until my income falls below minimum threshold or can I not rollover? Also at what amount (%) will the rollover amount be taxed?
@bawstonboy – I don’t know much about 403(b), but I think the same benefits apply. As far as the investment options go. You’re kidding about race horse right? If you want safety and positive gains, have you look into TIPS?
@Michelle – If you roll the money over into your current 401k or a traditional IRA (both of which are pre-taxed account), there is no tax implication as long as you do it correctly, e.g., do a trustee to trustee transfer instead of handling the fund yourself.
@Nancy – The timing should not matter much if you plan to invest the money in the same way. If you sell your funds for less, you’ll also be buying them for less. That said, the value should be calculated based on the date that the underlying assets are sold.
@Lynn – I am not sure. You should be able to ask your plan administrator about this.
@J – I see two separate issues here. 1. You always has the option to rollover to a Roth IRA, and your rollover will be taxed at your current tax bracket. 2. You should be able to contribute as long as you are under the Phase out limit (your rollover amount is excluded from the Modified AGI).
See clause 1b under Modified AGI: http://www.irs.gov/publication.....1000230977
J. You can do the rollover to a Roth, however the entire amount of the rollover will be taxed at your personal tax rate. The amount of the rollover will be reported as income to you and you will pay the tax on it. If you roll it to a traditional IRA there will be no tax hit to you. If you are above the limit you will not be able to contribute, however you could check with your current employer to find out if the current 401K plan has a Roth option. Those are becoming more avaialable in 401K plans all the time.
If you do roll it to the Roth you do not want to pay the taxes from the fund because this will be counted as a distribution that will incur a 10% penalty from the IRS for early withdrawal.
Hi, I worked in the US for 7 years, and have approx $70,000 in my companies 401K. I have since transfered to the UK (staying with the same company). I am not a US citizen, can i open an IRA and roll my 401K into this, or is the better option to cash it in?
Thanks
@beverley – I did some research and I believe you can rollover your 401k into an IRA — assuming your company allows an in-service rollover. If you do the rollover, make sure it’s a trustee-to-trustee transfer so you don’t get hit with taxes and penalty accidentally. You will also have to report the rollover to the IRS in your tax returns. Unless you reach the full retirement age and need the money, don’t cash out — you will get hit with taxes and an early withdrawal penalty.
Be sure to check with your 401k plan administrator and the brokerage where you plan to rollover the money to for specific details and requirements. It’s also a good idea to have a quick chat with a tax adviser.
I dont want to take out all of my 401k , just some, not all. Can i do this???
@bonniegiddings – If you’re referring to rollover, I believe you could do a partial rollover. I did it with my 401k plan (e.g., didn’t get all of it at once and has to do a second rollover) and also when I rollover SEP/Traditional IRAs to a Roth IRA.
Please check with your plan administrator to be sure.
i dont want to borrow just take some out of it… can i do that
OK, I’m 59 1/2 and would like to start using some 401K money I have been saving for 30 yrs. I am still working, and will for another 3-5 yrs. Can I take out a partial amount like $100,000 from my 401K and do a custodial to custodial to a IRA and from there get a check from them every month for lets say 1000 dollars. I know I will have to pay taxes on that 1000 bucks but is this possible?
I currently have over 147k in my 401k plan, and have (1) outstanding loan for 17k. I am an employee of MF Global and last week everyone was laid off. With significant bills for Mortgage, Car Payments, Insurance, Utilities, and Credit Cards, I can use my $$, but look to lose some 35k or more to taxes, so that worries me. is there any way I can use some of the money to avoid falling far behind with expenses, and not lose as much to early withdrawl taxes?
My son has a great opportunity to buy a house but it would require him to take out a loan from his 401(k). He also may be making a job change in the near future. If he rolls his 401(k) into the new job can he still pay back the loan or would the loan then be considered a distribution and he would be hit with the tax and penalty?
If that is the case, then could I make him a loan to buy the house and when he does the rollover, would he still be able to take a loan for the house but pay me back since he would already own the house?
@Dana – Unless you have a lot of money in your 401(k), there is no reason to start taking money out now, especially while you are still working and belive that you’ll live a long and happy life. There will be plenty of opportunity to take the money out.
If you still want to take out the money, why can’t you withdraw directly from the plan since you’re of the right age?
@Jerry – Have you considered other lending sources? For example, you can borrow $35k from Lending Club and $25k from Prosper – see: http://www.moolanomy.com/5428/.....marquit01/
@William – I don’t think your son is in a good financial position to buy a house if he has to borrow from his 401(k) to do it. I would encourage him to strongly reconsider it. Yes, the market is good for the buyer and the mortgage rates are low, but if your son haven’t save enough money up to now, does he think he can pay two loans going forward?
If he is planning to leave his job, this makes it even worse because he has to pay it all back before the rollover; otherwise, he pays taxes and penalty.
As far as taking out a loan after the rollover, I don’t know the answer. He could check with the new plan administrator
I had a 401k at my previous job. At the current job I just started, they will not offer me 401k until I sign as an annual employee. I got a letter from my previous job saying that I have like $330 built up in my 401k (not much, but I had just started investing in it when I became full time), and that I have to do something with it. I don’t want to cash it out because I know it is like a 10% penalty. But I don’t know what would be better for me: Traditional or Roth IRA. I have no idea what my tax bracket is. And I don’t know the best place to open any type of investment accounts either.
I am 24 and clueless. This stuff is frustrating because I do not understand it. But I REALLY want to get started in investing. I want an IRA, a 401k, etc. etc. etc…. anything to help me be well off and financially stable.
HELP.
@Jessica – You can certainly rollover $330, but it might be hard to find a broker or bank that allows you to have $330 in the IRA without incurring an account maintenance fee. Also, $330 is probably too little to invest if you factor in the cost of trade commission as a percentage of your investment.
You might want to look into IRA CD. You can check with your local banks, or try Discover Bank: https://www.discover.com/online-banking/ira-cd/#faqs
Another option is to see if you could contribute to an IRA, then combine your rollover into a single IRA account to meet the minimum balance requirement.
@Pinyo, I figured $330 would be to small of an amount, but I have to do something with it before Dec. 7th or its a 20% penalty. And if I get it sent to me as a check it is penalized too. So I’m kind of stressed out about it.
I need to know what to do really
I was looking at this since I have a pretty small 401K from part time employment however the company stock is not doing so well. I want to just ladder CD’s or pick a longer term CD and hope rates don’t go up too much so I lose that chance. Here is my really important question, do I have to pay fees if I just research on my own and choose the CD’s and bank I want? I don’t see less than $2000 worth a fee, yet I don’t want it where it can lose money either.
I recently switched employers, and in the end what I want to do is transfer my 401k, to a couple banks traditional IRA, when cd rates go to a decent amount, I know that is years out so I got time.
Here is the issue. My amount in my 401k is > 250k, so any bank or credit union I would transfer to I would end up having some money uninsured. And there is a provision in the 401k which says I cannot transfer part of it to another institution, it’s all or nothing. So debating on seeing where I can send it to, which will let me later split it. Are there any gotcha’s I got to look for. Like I am vaguely remembering some rule that says you can only do 1 transfer of this nature per year. Realize, to do what I want, if that was the case, I would probably transfer all to vanguard, because it is sipc insured, then the following year, transfer 1/2 to a bank/cu, and transfer the other half to another. Seems like alot of hassle. Any other options I can do?
go ahead and set up the bank IRA and transfer it all. At that point it is no longer part of the 401K plan and is no longer subject to their rules. At that point you are in basically a self-directed IRA and you can then transfer whatever part of it you want into another IRA you establish at another institution. Remember your investments are not insured against loss due to market activity, only against failure of the bank and what is held in their accounts (CD’s, savings, etc)
@Anne – You can do research on your own. You just have to find a bank or broker that fits your investment needs so that you can minimize fees and maximize your returns.
I have a question in regards to 401K to IRA rollover OR complete 401K withdrawal in case of a company international transfer. I was with this company in US for 5 years. I then took a transfer to India. Both are seperate legal entities in US and India respectively. For all practical purposes, I cannot return to US. My contributions have stopped as I am not its employee. However when calling my plan administrator, they tell me that my employer in US still reports me a ‘active’ and hence they cannot allow funds withdrawal. Would like your views and opinion.
I am 65 years old. I have about $100,000 in a 401(k) plan that I left with a former employer’s plan. Plan management costs me nothing, and the investment options are satisfactory. However, I now need income to live, and that plan will make only a 100% distribution, which I don’t want to take because of the taxes. Should I convert the 401(k) to an IRA so that I can access the funds, little by little?
Thanks for your advice.
My company is about to get bought out. Scheduled for Q2 2012. In the past when my company bought others they laid the employees off one day, paid them out and then hired them the next day. I have a 401K with my current company that I want to roll into an IRA. How can I do this so they won’t start the 401K into the new companys 401K?
FYI, I’m under 50 in case that matters.
@bbhatt – That sounds like something that you have to resolve with your US employer. If you are no longer with them, they should give you the option of transfering your money elsewhere including rolling it over to an IRA.
@Thomas – Rolling your 401(k) over to an IRA sounds like the right option for you. You will have to manage the IRA in such a way that would allow you to withdraw money with the least expenses.
@David – You would have to check your employer to see if they’d give you the option to rollover your current 401(k) into an IRA.
I have a rollover IRA , a 401k and now a new company coming in is offering a 403b plan. Do I put it all together or just put 401k in with the rollover I currently have? I need help.
I am about to retire. I must move my company 401k savings. If i roll it over to an ira, will i be able to withdraw more than the minimum reqired withdrawal from my ira as i the need arises?
Another significant consideration is how it affects Roth conversions. For those of us who have to back-door by doing a traditional IRA each year and then converting it, the conversion includes all IRAs balances but not 401ks.
@Susan – If you have a traditional IRA, you might be able to rollover your 401(k) and IRA into the 403(b). While it’s legal, it’s ultimately up to the 403(b) plan administrator whether or not they would allow it. In any case, I still think it’s better to rollover your 401(k) into an IRA, and keep a seperate IRA and a 403(b) plan.
@Peter – You have the flexibility to withdraw as much as you want from an IRA.
We took out a 401K loan to cover a loss on our home when we moved and had to sell at a loss due to the current market conditions. We took out the total $50,000 and have $40,000 remaining to pay, but my husband just moved to a better job. We are now faced with having to default on it and pay a huge penalty. Feeling pretty defeated after being responsible folks, paying the loss on our home in the first place, and now getting hit with huges taxes. We don’t have the money to pay it off or any rich relatives to loan it to us. Can we roll it over to his new employer? Do we have any options besides defaulting and paying who 15K or more in taxes?
@becky – I am sorry to hear that. There are a couple of options:
1. You husband can try talking to the new employer and see if they could do anything to help.
2. You can resort to short-term loans from Prosper and Lending Club, pay back the 401(k) loan, then rollover the 401(k) into an IRA or the new employer’s 401(k).
I recently retired. I have some money in the 401K with my employer, part of which is my contribution made post-tax. I am thinking of rolling the whole amount over to an IRA. Can I roll the post-tax contribution to a Roth IRA and the rest to a traditional IRA, without subjecting the Roth IRA rollover amount to any taxes?
Thanks
@KaiSoon – It appears that you can so what you described according to this discussion at Bogleheads: http://www.bogleheads.org/foru.....hp?t=48237
I am 62 1/2 wanting to retire early in the next few months. I’ve had my 401k with my company ever since they introduced it to us. I need to take money out for income after I retire. $200,000 in the account. I need to take $1,400 a month for income. Do I need to do a rollover or keep it with my company. What’s my best options for tax purposes? My bank says they can handle the 401K for me. What do you suggest?
@J Jones – I am not sure if your 401(k) plan allows small regular withdrawal, you’ll have to ask them. If not, you can rollover to an IRA. When it’s in an IRA, you will have to decide how to invest your money to grow and preserve your money, and at the same time minimize your expenses as you withdraw your money. This is an important decision and I recommend that you see a financial planner.
Based on my rough calculation, if you keep your withdrawal steady at $1,400 per month (which would be hard to do due to inflation), you will run out of fund in about 10 years.
i am still working and i am over 62. because my division will be acquired by another company and i plan to rollover to the traditional IRA. I talked to a reprentative of one financial company and i asked them to see them in person and they refused and want to set up by phone and on-line they have so many questions to ask me my name, dob,ssn my children names dob ssn my current financial situations… i dont feel comfortable. my question is should i tell them everything about me my family to them by phone to open IRA account or should i see them in person and their process is normal or not. many thanks.
401K or IRA. I would like to withdraw money from my 401K. I am over 59 1/2. Is there any tax advantage to transfering money from the 401K to an IRA and then start taking money out? Yes I can take withdraws from my 401K right now but from what I’ve been told its a 20% federal and a 10% State immediate hit and at the end of year the orginal amount you took out your taxed for again. So would there be an advantage to putting bucks into IRA then withdrawing from there. Thanx
@p.vu – I think it depends on the company. I don’t recall giving that much information over the phone. When I dealt with TD Ameritrade, Schwab, and Scottrade, I went to the branch. When I dealt with TradKing and Vanguard, I filled out the applications and mailed them in.
@Dana – You pay the same amount of income taxes when you withdraw from 401k or IRA. When you withdraw from your 401k plan, the plan administrator will withhold taxes and give you the difference (this means you will owe less taxes when you file, and possibly even get refunds).
Hi: I am retired with no earned income. I have IRAs and 401Ks coming due for required minimum distribution this year. Can I roll over either the RMD or entire IRAs including lump sum retirement payout to Roth IRA? What are the limits? Thank you. Johan
again many thanks for your replying my questions
1) in your opinion is that the best way to talk to the representative in person about the rollover 401k to ira, isn’t it?
2) i am confused about traditional ira when they talked about ira cd, ira money market, ira investment … is there any standalone ira with interest in it?
3) can i ask them to open an ira first then i know my ira account and process the rollover from 401k to that account…
4) how long the process will take place? and when the money loaded to my ira account … do i have to wait for 3 months to acctually start withdraw my money?
5) do they charge any fee for the process of rollover… if they do how much the fee normally cost? and for example i have 100k fully vested then if i rollover from that 401k to ira should i get 100k in that ira account or they will transfer 90k to ira and 10k to somewhere else.
I really appreciate your help … because i do not know much about the rollover process… it seems to me it is a bit tricky
many thanks again … happy new year
@Johan – What are you trying to accomplish? You cannot rollover your RMD amount.
You will have to pay taxes on the non-RMD amount you rollover from your 401(k) to a Roth IRA and your traditional IRA to a Roth IRA conversion; so I don’t understand why you would want to do that.
@P.Vu:
1) They can provide you with the specific steps, but a CPA would be the best person to talk to.
2) IRA is a generic type of account. Some banks do offer IRA CD or IRA MMA because they don’t have a full service IRA account. These are appealing to some people because they are easy to understand (but usually are not the best)
3) That’s usually how it work, you have to open an IRA account so that money could be roll over into it.
4) It took me about 2-3 weeks. I am not sure about the withdrawal wait period. You should check with the IRA rep or your CPA.
5) Generally, no and I didn’t pay any fee when I did my rollover. Your situation might be different.
Again Many thanks to Mr Pinyo for your great answers
I really appreciate your kindness to help me understading the rollover process … today i would like to ask you few more questions:
1) is that true if i am over 59 1/2 years old then i can rollover my 401k with the current employer to my IRA account with a bank or any financial institution which has the rollover ira option while i still work for my current employer
2) if (1) is true (my thinking is correct) then first I must talk to the bank or the financial company to open a rollover IRA account … then secondly I must talk to my emploer to ask them to send a check to withdraw my 401k balance and send it to the bank on behalf of my IRA account am i correct ?
3) somebody told me : do not agree if the financial group who hold my 401k money give an option to send the chech directly to me and let me take resposibility to bring that check to the bank i have an IRA account … that way is dangerous because I will end up to pay tax on the amount of money i receive in the year the process taking place…
4) do I have to concern about the bank or another financial company having the money insured with FDIC for each individual account with them – the limit and regulations ?
Again many thanks to Mr Pinyo for your great help
God bless you and your family
In 2011 I did a direct rollover from roth 401k to roth IRA. The total amount was $20,000. My after tax contributions were $14,000 and my employer contributed $6,000. Am I correct to believe that I will pay taxes on the amount that the employer contributed to my account? Are you aware of any ways to defer this tax?
My sister went to do her taxes and they told her she needed 1099 forms from her previous investment company (through ex employer) and one from the bank. On the form that she completed through her employer she checked off that she wanted to do a rollover of her 17K from AXA equitable in her 401K to a roth IRA that was opened with Wells Fargo. A check was written to her name and was deposited into the Roth IRA. Now, H & R Block is trying to prepare her taxes and is telling her that she needs to pay taxes on 17K. Is this correct?
I “rolled” over my 401K into an IRA after getting laid off last March. It was a “trustee to trustee” transfer as you indicated is the best way. I just received a 1099 in the mail from the original 401K provider,,?? Any idea why?? What does this mean? Who should I talk to about it?
I am 64 and I want to put money in my established Roth IRA that was opened in 1998. I want to add money into that account and I think I read somewhere that the new money added has to stay in there for 5 years before I can withdraw the original amount and the interest. Is that true since this Roth account was opened in 1998 and the account is now listed as a Roth IRA? I can not contribute to my Traditional IRA and I have a 401K from my employer.
@p.vu –
1. What you’re referring to is called an in-service distribution and you can read more about it here: http://www.goodfinancialcents......l-working/
2. Correct.
3. Correct. You should ask for a trustee-to-trustee transfer where you 401k plan send money directly into your IRA account.
4. If you transfer to a broker, it is covered by SIPC protection. You can read more about it here: http://www.moolanomy.com/4585/.....ss-ttolar/
@JW – I am not 100% sure, but I believe you’re correct about paying taxes on your employer contributed amount. You could possibly avoid paying taxes by recharacterizing Roth into a Traditional IRA. You can read more about recharacterizing here: http://www.investopedia.com/ar.....z1lWsZOpSe
@Veronica – If AXA wrote a check to your sister, then they would have already withheld 20%, or $3,400 (20% of $17,000). If your sister deposit the $13,600 check from AXA plus $3,400 from her own account (to make the $17,000 whole again) into Wells Fargo within 60 days, then she will get the $3,400 back when she does her taxes. If she only deposited $13,600, then she will have to pay taxes on the missing $3,400 plus a 10% early withdrawal penalty (if she’s not 59.5 yrs old).
@Sue B – That’s normal. The 1099 shows that you did a rollover. Just give that to your tax preparer.
@Alice – The 5 year rule is based on the original date of 1998, so you shouldn’t have any problem. In any case, you can withdraw your contributions at any time. You can read more about it here: http://www.goodfinancialcents......year-rule/
If i roll $3600 in after tax money from a 401k to an established Roth IRA in February 2012, does the $3600 rollover limit me to $1400 more for 2012 or can i still contribute $5000 additional?
I’m going to retire and roll over my 401k to an IRA. I have no idea how to manage my IRA. Where do I learn how to do that?
I am changing jobs, and I know I can roll my 401K from my current (soon to be previous) employer to a firm and then I can put the money in stocks/funds that I want. BUT, I would like to keep ownership of the stocks that it currently holds, because they were bought at a very low value and now are worth much more.
When that money/account is rolled over, does it move as “cash” only, or does it retain ownership of the stocks and funds that it is valued from owning?
If I want to keep ownership of the stocks, do I have to leave it in the company 401K that I am leaving?
Can I roll a “partial” amount, say from the “funds” that it owns, but leave the full amount that owns the stocks?
Hope this makes sense, this is all new to me…
I put $6000 into my IRA for 2011. My husband ended up making too much money for us to get the tax deduction so since we’ve already paid tax on that income, if I move that $6000 to a Roth IRA, I am told they will call it a tax distribution and I will have to pay income tax on it in 2012. That doesn’t seem right since we already paid income tax on our income in 2011 and I am just putting it into another IRA. I’m not withdrawing the money to keep. My hands will not even touch that money. Do you think I will have to pay tax on it twice?
I just left a Walmart and have a fully vested 401k. I want to invest in options and stock. I want to know when it is time for to receive the money (less than 30days). Will I be taxed on moving my 401k to TD Ameritrade. And when its there and I start trading and making a profit will I be able to take my money out.
Hello Mr. Pinyo:
I am non-working 70yrs, single, with $11K traditional IRA in a bank,$40K trad IRA in a mutual fund and $94K in pre-tax 401k with former employer. Is the MRD mandatory? I do not need the funds now and would like to leave it if possible where they are to avoid taxes at least for now, otherwise my tax bracket may jump from 15% to 25%. If I must take the MRD this year, it allow to rollover just the MRD amount to ROTH IRA to avoid double taxation (now and in the future if I must re-invest it in taxable investments or it would be better to do yearly partial rollover from 401k to ROTH IRA, pay taxes and be tax free in the future? The 401(k) broker told me that they allow partial withdraws. If I rollover partial now from 401k to ROTH (before file 2011 income tax) the tax that I must pay, it allow to report it in 2011 income tax? My income perhaps would be less last year if I have to take MRD this year. Please advice the best options available.
Thanks
Vera
@Gilbert – The rollover doesn’t count against your yearly contribution.
@Peter – That’s a very difficult question to answer. You can start here: http://www.moolanomy.com/431/p.....beginners/ — but there is a lot to learn. I think it’s worth it to find a financial planner who can go over you finances with you and provide you with a personal recommendation.
@Firstmate – Because these accounts are tax-deferred, you don’t generate a taxable event when liquidating these stocks to rollover. You could sell, rollover, and repurchase these stocks. However, it does generate a gap and trigger trading fees. You could ask your trustees to see if they would allow asset transfer (generally, the answer is no).
As for partial transfer, you have to check with your 401(k) plan administrator.
@Sharon – Your situation is fairly complicated so you might want to consult a pro. Based on this article — http://www.biblemoneymatters.c.....-roth-ira/ — it appears that you can’t decide to move just the $6,000 non-deductible portion into a Roth IRA. If the $6,000 represents 10% of your total IRA, then 90% of the conversion will be taxed.
@Terrell – If your TD Ameritrade account is a Rollover IRA account and the money is transferred directly from your current plan to TD Ameritrade, then there should be no tax and penalty. As for the profit, you can’t withdraw that until you are 59.5 years old unless you pay the 10% penalty. You always have to pay taxes on withdrawal from 401(k) and IRA.
@Vera – Yes, Required Minimum Distribution kicks in when you reach 70.5 years old. Unfortunately, you cannot rollover just the RMD portion, and technically, there is no double taxation. You take the distribution and you don’t have to pay taxes on that amount again (except for the earnings).
You can rollover your 401(k) to a Roth IRA if you qualifies. However, you will still be paying taxes on the rollover, plus the RMD — so that doesn’t make sense either.
I’m 40 and got hurt at work. Hip, a couple spine surgeries and 3 shoulders surgeries. They will not let me go back and I’m unable to work. I have about 100,000 in 401k and about 45,000 in profit sharing stock. Which the stock is low and would prefer not to sell it. I have been recommended to pursue disability. I do not want to keep my money in the company plan. I plan to roll it over but will I be able to roll over the profit sharing without selling? Would rolling over my 401k to traditional IRA be my best option? Thx in advance
I rolled over several old IRAs in 2011 to a traditional retirement IRA. When I received my 1099-R forms I found out that some of the money that was rolled into the new IRA was after-tax money. Now I’m told I can’t get the after-tax amount out of my new IRA or move it into new a Roth IRA, and I will have to file an 8606 form every year indicating the after tax amount that went into my IRA. I looked at the 8606 form on the IRS site and frankly, I can’t make heads or tails of it. Any advice would be greatly appreciated. Thank you.
Hello Pinyo:
If I name my nieces as beneficiary of my 401k, what will be the tax impact, they are non-us resident, living abroad and have no social security. My former employer has allowed them. Would be better if at least add my brother, who lives in USA and has SS no include in the beneficiaries designation?
I read comments that IRA give better “treatment” to non-spouse, non-us residents?
If I decide to roll-over my 401k to an IRA, which type of investment and institutions would you recommend for a retiree?
In 2011 I rollover traditional IRA from a bank to Fidelity and Fidelity code it as “Addition” ! in Form 5498. They will correct/mail it in 10 business days.
Thanks
@David – I think there’s a lot more to your situation, e.g., who is “they” in the “they will not let me go back”? This sounds like something that you should consult with an employment lawyer.
@Bob – Unfortunately, that’s correct. This article on Investopedia does a good job of explaining everything: http://www.investopedia.com/ar.....092904.asp
@Vera – Your situation is beyond my scope of knowledge and I highly recommend that you talk to an estate lawyer who specializes in international estate planning. It will be a good investment.
Can I use a 401k rollover from a previous employer to paydown a loan on my current 401k? How about an ira transfer to paydown the loan…
@Linda – No. You cannot do either.
Retired recently at age 57. Can I withdraw from 401k now without 10% excise tax – then turnaround and do rollover to IRA? Need to get my hands on some of the money now…
Hi Pinyo…
My wife and I are Federal Employee’s and we are both 56 years old. We are planning on retiring this year (10/2012). We both have 401k’s and understand that our maintenance fees are minimal through the Goverment plan.
If we can rollover our 401ks to a Roth IRA, is there a limit to how much we can rollover? Would we be able to rollover the whole 401k at one time, or over several years?
Would we have to pay taxes to do so? Or, as I read, make our AGI go up for the year depending on how much we use of it. As our 401k’s sit now in a very low interest gaining “G” Fund. We decided not to gamble our hard earned money in this economy so close to retiring.
Your reply would be greatly appreciated.
Thank you.
Edward, Look up IRS rule 72T. It allows you to roll your 401k into an ira and then withdraw substantially equal amounts for 5 years without the tax.
A little similar to cases earlier mentioned by Sid and Beverley, I worked for 10 years in the U.S. building up a 401k. 2 years ago I terminated employment with the U.S., but transferred/re-hired in another country’s affiliate of the same U.S. corporation. Now I am living in Europe, and I have no personal financial links whatsoever to the U.S. anymore (paid in Euros, etc), but the company will still not allow me to rollout my company managed 401k into IRAs of my own choice. Is there any way that I can fight this, or am I just stuck until I leave this company or turn 59? Thanks for any help!
I finally got my check back from fidelity due to excess contributions of $150. They tell me I will get 2 1099′s one for the excess withdrawl, the other for the $5 interest, however I am not getting them until January 2013??? Does this seem right, for excess contributions for 2011, or do I need to call and ask for a manager at fidelity. I just don’t understand because I got to pay the taxes on this excess in 2011, and it is hard to do it when I don’t have a w-2 or 1099 representing it. Thanks
I am 66 and have retired I withdrew sizeable amounts last year to pay off debts. Now I have 5700 to either withdraw or rollover. My income this year will be adjusted 34500. What should I do?
@Edward – As per Gilbert, you should look into substantially equal periodic payments exception, i.e., Section 72(t) distribution. The full rules can be found in IRS Publication 590.
@Randy – If the main purpose is to gain more control of the investment, why don’t you just rollover into a Traditional IRA? I think that gives you even more control than rolling into a Roth IRA since you do have to pay taxes on the entire rollover amount.
@David – You can look into in-service distribution (your plan may or may not allow it). Other than that, I don’t have anything else to offer.
@Steve – It appears to correct according to this article: http://www.investopedia.com/as.....z1nXyJwY6O. Since you made the excess contribution, you’re unable to take deductions against that amount and the earnings due to that amount.
@Joseph – What do you intend to do with the $5,700? If you’re planning to use it soon, then there’s no pooint in rolling it over.
I was laid off from my employer in November 2010, and had a 401K from them through Merrill Lynch. I have since started with a new employer and have started a new 401K with Vanguard. I was told to have my 401K rolled over to Vanguard, but after speaking with Merrill Lynch, they suggested rolling it into an IRA.
I am 41 years old, and I have no idea what tax bracket I am in, so I’m not sure if I should roll into new 401K or put in an IRA. I’m very confused. I have no idea what any of this means, I just knew it was important to have a 401K.
Any suggestions would be nice. Help!
I have money in a ROLLOVER IRA. What are the rules if I want to withdraw money to purchase a home as a first-time home buyer?
Thank you, great site, very informative.
JS
I got laid off my job in 8/2011 and have a 401K ($60K) with my employer. I don’t have job yet & want to rollover the 401K to a Roth IRA. I’m 60 years old. I bank with a credit union and recently went to a financial advisor. He told me I would be in a better position financially with a Roth IRA because I would have better options and diversification with my money plus the fact I’m in lower tax bracket now. I could do this before 4/17/2012 so I could file it in 2011 when still working. I hope this makes sense because I’m still looking into my options with the Roth IRA rollover. Also, would I have my former employer make the rollover check out to the credit union to put into Roth IRA account?
Thanks for any advice you can offer.
Jill
Hi, I retired about a year ago and need to roll my 401k over to an IRA (traditional). Some after-tax money is in the form of company stock, which I know I must liquidate.
Should I first sell shares with the lowest basis? What are the pros and cons of the “bottom up” and “top down” approaches? Thank you for your help.
Just retired from federal government with several hundred thousand in my thrift savings program (TSP)(401K). we are getting conflicting info about rolling it over. Were told if we take out the TSP funds we will owe over $40,000.00 in federal taxes plus state taxes. WOW that will sure dig into the balance. SO, if we roll it over into a IRA, we will be ok until we take out the $$. BUT, what if we roll it over into an IRA and maybe a little later put those funds into CD’s, will we be taxed on that process before we collect on the cds?
@Heather – If you are not that comfortable investing on your own, rolling over into Vanguard and inveting the money in their funds is not a bad idea. In general, rolling over into an IRA is a better advice and allows for more options and flexibility.
@Jack – For home purchase, I believe you can withdraw upto $10,000 (without the 10% penalty) but you still have to pay taxes on the amount.
@Jill – Rolling over to an IRA is probably the right decision. The choice between Traditional IRA vs Roth IRA really depends on how much taxes you expect to pay now vs. at the time of withdrawal. If you are the 15% tax bracket or higher now, I’d suggest rolling over into a Traditional IRA so that you don’t have to pay additional taxes — you’ll be taxed when you withdraw the money, but you can control that better than paying taxes on $60k all at once.
@Martin – I don’t think you can choose to liquidate the shares with lowest basis first. It’s usually the average or the FIFO method (oldest shares are sold first). That said, you might be able to rollover your shares without liquidating (check with your plan administrator).
@Brenda – IRA are also tax-deferred. As long as you invest inside the IRA and don’t withdraw the money, you don’t have to pay taxes.