Question about our 401k options....

[Anon1]

Im a full time driver and would love to be able to transfer my money to a Roth IRA. I know all the steps involved but Im curious as to if anybody has actually done it before?

401k--to--Rollover IRA
Rollover IRA--to--Rollover Roth IRA (paying taxes in the meantime)

Paul,

No one has addressed why rolling the whole thing over (if possible) is a bad idea. It is the taxes you have to pay--not talking about any penalty. Here is a chart for 2007:

Filing Status and Income Tax Rates 2007
Tax rate Married filing jointly
or Qualified Widow(er) Single Head of household Married filing separately
10% $0 - 15,650 $0 - 7,825 $0 - $11,200 $0 - 7,825
15% $15,651- 63,700 $7,826- 31,850 $11,201- 42,650 $7,826- 31,850
25% $63,701- 128,500 $31,851- 77,100 $42,651- 110,100 $31,851- 64,250
28% $128,501- 195,850 $77,101- 160,850 $110,101- 178,350 $64,251- 97,925
33% $195,851- 349,700 $160,851- 349,700 $178,351- 349,700 $97,926- 174,850
35% over $349,700 over $349,700 over $349,700 over $174,850

See the tax rates on the left. You could easily go from the 25%-28% to the 33%-35% bracket. Not only that, but you would have to pay state taxes on this money also and can you say alternative minimum tax? You could easily wipe out 40% of your savings depending on your circumstances. Better to do it any deferred plan a little at a time to avoid hitting the next tax bracket. Just my two cents.

 

[browniehound]

An important aspect of the 401k program that most people are not aware of is that with the 401k when you retire at age 55 you can start withdrawals without penalties. If you role the funds over into a ira you are stuck with the 59 1/2 rule. With many of us retiring early, this early cash flow can be important to supplement our standard of living.

PackageStud, (LOL)

I'm not sure that is entirely accurate. My understanding is you CAN take withdrawals before 59.5 and even 55 without penalty. But to do so, you would need to determine your life expectency. Then, you must make equal yearly withdrawals up until that age.

For example, you are 49 and determine you life expectency will now be 80 years old. If you want to start withrawing at age 49 penalty free, you will need to make 31 equal, yearly withdrwals.

To simplify my example, your 401k balance is 310,000 at your 49th birthday and you wish to retire. To withrdraw penalty free, you could take $10,000 each year for 31 years.

I don't know how your life-expectency number is calculated. Me not knowing where this number comes from shows that I'm not entirely confident that I'm 100% correct in this 401k fact.

I have read it on more than one occasion and in the tax laws that come with my own 401k statement.

Can someone please confirm that this a legit penalty-free withdrawal option? And if there is an expert here could you please go into detail about the life-expectancy number?

 

[Anon1]

All of your questions should be answered by accessing the irs.gov site and downloading Pub 590. It has tables for the life expectancy question. Yes, they are penalty free options. There are more for an IRA than a 401k. Be sure you are reading about the 401k when reading this Pub.

 

[helenofcalifornia]

OK, this may not be a popular move with many that are looking at long term growth, but, I moved all my 401k money into the stale value fund last October. I have been on disability, so have not contributed any money into it. But, my 401k value has grown by $6000. No losses. When I see the market start to consistently rebound, I will re-balance my fund. Just my thoughts on 401k investing.

And I think we should all look at our 401k accounts at least once weekly. I didn't when the market was tanking in 2001 and could have saved myself thousands of dollars and been that much further ahead.

Mountain, you should start a thread of your own with investment info. There are a lot of us out here who don't know squat or are looking for different ideas. But then again, you must be the "strong, silent type" since you have been a member since 2002 and only posted 48 times. Obviously, not female! lol

 

[brownmonster]

Tanking markets are buying opportunities.

 

[mountaingoat]

...Mountain, you should start a thread of your own with investment info. There are a lot of us out here who don't know squat or are looking for different ideas. But then again, you must be the "strong, silent type" since you have been a member since 2002 and only posted 48 times. Obviously, not female! lol

The last time that I looked in the mirror, I didn't look THAT much of a female. But just to be sure, I'd have to check with my wife. So that I'm right about that, I'd have to check with her. But what information can I really post? I have lots of personal financial planning information, but I don't feel like getting into a war with other posters - naming people won't help matters, and I'm not going to do it. And, I'm not even going to tell you if I'm management or hourly. Honestly, it doesn't matter to me. We're all working for one company, not one that is union and one that is not.

Honestly, Helenofcalifornia, I don't know what I'd start a post about - and then who would read it? I've done well for myself, but my investing style mirrors a slow, steady growth. Most people want the instant riches, not the tried and true methods. Would you want to know about how to get rich in 30 years or get rich tomorrow?

The other thing is - I'm just an anonymous person on an internet board. One of my investment philosophies is to NOT take advice from anonymous postings. Seriously, would people take stock-buying advice from a person on the street? Yet, they do it when they receive an e-mail from someone they don't know informing them that stock X is HOT, HOT, HOT (with apologies to Buster Poindexter ;-)). Why does that seem right? It isn't, and people need to do their homework.

I will give you advice for setting up your personal finances if you send me a message indicating what you need help with. I'll give you my opinion, and then you can do with it what you will.

And remember, "Always look on the bright side of life..."