401k Roth

Frequently Asked Questions

1. QUESTION:
   Does the IRS allow to invest in a 401K Plan and also a Roth IRA account at the same time?
   I just signed up for a 401K Plan with my company and am also considering investing in a Roth IRA Account. My question is, does the IRS allow simultaneous investments in the 401K & Roth IRA? My filing status would be married filing jointly. Thanks.

   • ANSWER:
     Yes, as long as your modified AGI is less than 6,000. At that point, phaseout limitations occur.

     You can contribute 00 (00 if you are 50 or older in 2007).

2. QUESTION:
   Can I contribute to individual roth ira and 401k roth ira at the same time ?
   I’ve contributed the maximum allowed for the 401k roth ira (500). Can I contribute another (00-00?) to an individual roth ira account? Or any other individual ira account in the same year?

   • ANSWER:
     The short answer is yes, you can still contribute to individual Roth and Traditional IRAs. However, when you are covered by your employers retirement plan there are limits to how much you can contribute. The limite is dependent on your modified adjusted gross income and your age.

     See IRS document Publication 590, page 14 for explanation. http://www.irs.gov/pub/irs-pdf/p590.pdf

     If you have a spouse who makes less or no income, you may also save money (and reduce your taxes) by opening an IRA for your spouse.

     Best wishes.

3. QUESTION:
   401k Traditional vs Roth : Does your investments grow tax free in both or just the Roth?
   My job is offering both 401k traditional and roth. I’ve been debating doing a IRA or a 401k . But that was before I knew there was a 401k Roth. I remember reading that the Roth IRA lets your investments grow tax free , vs the Traditional where at the end of the year your growth gets taxed. Is the same true with a 401k Roth? Also, my job only offers to pay for the funding fees, they dont offer any matching.

   • ANSWER:
     Roth (both 401k and IRA) are funded with post-tax dollars and grow tax-free. When you withdraw, you don’t pay any tax on it. There are some differences between a Roth 401k and Roth IRA in when you can withdraw money that you put in. And I think the Roth 401k has required distribution.

     401k and traditional IRA can possibly give you tax benefits now(401k gives you a tax deduction and depending upon your situation most likely you also get a tax deduction with IRA). The money grows tax-DEFERRED. When you withdraw it, it is taxed as regular income.

     I split my money between the traditional and Roth. The reason being, that way I have flexibility in dealing with taxes. Example…In a high tax year you will draw little from the traditional and draw from the Roth and in a year with low income you withdraw from the traditional and leave the Roth.

4. QUESTION:
   For employer 401k contributions should I choose pre-tax or Roth?
   I’m 38 years old and assume i’ll be in a higher tax bracket when I retire, so I’m thinking Roth makes more sense. But it doesn’t seem like a no-brainer to me so I’m not comfortable with one over the other yet.

   Also, if I’m contributing to a employers 401k Roth, can I no longer contribute to a non-401k Roth? What if I already have contributed to it for the year before I started at my new employer, and I contribute to the 401k Roth?

   • ANSWER:
     Why you think you will be in a higher tax bracket when you are retired and no longer working?

5. QUESTION:
   I have a company matched 401k, Roth, mutual fund and substantial savings what should invest in next?
   I am 24 yrs old and have roughly ,000 in 401k, ,000 in Roth and ,000 in mutual fund. I also have ,000 in savings account earning pennies.. I would like to do something with a portion of this amount in savings but would also like to stay liquid because I will be purchasing a house within 1-2 years. What should I invest this in?

   • ANSWER:
     This may not be the best advice but why wait one or two years. Interest rates on mortgages are at rock bottom rates. House prices are down. You have enough for a decent down payment. Start shopping around.

6. QUESTION:
   What’s the 2008 contribution limit for Roth 401k and Roth IRA combined?
   Like the question asks what is the combined total limit for the Roth 401k and the Roth IRA? I’ve read too much conflicting information that you can contribute the full 5k in the Roth IRA and 14k in the Roth 401K? Then I’ve checked with financial advisors and they indicate otherswise. Hm, please CITE sources with your response, need accurate information.

   Lastly, if anyone know what the combined limit between the Roth401k, Roth IRA and the traditional 401k also list it as well.

   Thanks!
   Can Icontribute to all three: Roth 401k, 401k and the Roth IRA?

   I know you can do the last two but what about all three?

   I am of course referring to just partial amounts so I don’t exceed the 15k annual limit and the as far as I know the 5k limit for the Roth IRA is considered separate. Thanks!
   Forgot to mention within the Roth IRA AGI limits and under the age of 50.

   • ANSWER:
     The 2008 limit for a 401k is ,500. If you’re 50 or older in 2008, you can contribute an additional ,000.

     The 2008 limit for IRAs is ,000. If you’re 50 or older on 2008, it’s ,000. However, your ability to contribute to a Roth IRA is reduced or eliminated if your modified adjusted gross income exceeds a certain amount. The amount depends on your filing status. See IRS Publication 17 for details. You can download it from www.irs.gov.

     The combined limit is the individual limits added together (,500 or ,500 depending on your age and subject to adjustment if have a Roth IRA and your modified AGI exceeds the limit).

     The limits apply regardless of whether the account is a Roth, traditional, or if you put some money in one of each. For example, let’s say that you want to fully fund your IRA, you’re under 50, and your modified AGI is less than the limit for a Roth IRA. You can put ,000 in a traditional IRA. You can put ,000 in a Roth IRA. Or, you can put some in both accounts as long as the total contributions to both accounts combined does not exceed ,000.

7. QUESTION:
   Can an American expatriate contibute to a Roth 401k offered by his American company?
   I work for an American company in Korea and my company is now offering a Roth 401k. Since I don’t pay taxes on the ,500 with the foreign tax exclusion when I file my taxes, if I contribute the Roth 401k what will the issues be if any?

   • ANSWER:
     I am sure your company has someone in the HR department who can answer this question in detail but likely you can contribute. If you are actually an expatriot the fact that you live in Korea is irrelevant.

8. QUESTION:
   Is a roth 401k better than a regular 401k plan for a 21 year old? I dont know anything about retirement plans
   Is a roth 401k better than a regular 401k plan for a 21 year old? I dont know anything about retirement plans. But the lady giving the presentation at my work said roth 401k would be better for my age but I dont see how. Also my company will match up to 5% any tips I should consider?

   • ANSWER:
     I concur whole-heartedly with the responses stating that the Roth is better due to its pre-tax status.

     By the way, if you take 00 and sink it into an investment making 12% within a Roth IRA, then add 0 a month to it, it turns into ,775,093.54 when you are 65. Not bad.

9. QUESTION:
   If I open a Solo 410K and a Roth 401K, are the contribution limits separate or combined?
   I am self-employed and have a SEP IRA. I am thinking of opening a Solo 401K and a Roth 401K. I want to convert the SEP into the Solo 401K. When I’m done I can reduce my taxable income with the Solo 401K and can have the Roth for tax free withdrawals at retirement. Are the contribution limits separate or combined for these 2 401K accounts?

   • ANSWER:
     All 401k contributions must be treated as one big contribution just as IRA accounts do. You can have many 401k accounts, but all your contributions must be added together.

     The maximum contribution to 401k is ,500.
     The maximum contribution to IRA is 00 (00 if you are 50 years old or older). The amount you can contribute to IRA could be reduced if you earn too much income. IRS publication 590 goes into full details on how much you can contribute into Traditional IRA or Roth IRA.

10. QUESTION:
    What would be an effective way to get my employer to offer a Roth 401k?
    My employer currently offers a traditional 401k (tax deferred contributions and gains) but being rather young, I’d prefer to have a Roth 401k (post-tax dollar contributions and tax free withdrawals upon retirement). It doesn’t cost a company anymore to offer this benefit (not considering employer matching contributions) but it could be somewhat of an administrative burden, especially to initially set it up.

    How do I convince my company that this is something they should do?
    Actually I don’t qualify for the Roth IRA due to AGI limitations but even if I did, I could only put in k per year while a Roth 401k allows me to put in ,500 in 2007 and I want to maximize my retirement contributions.

    • ANSWER:
      When the ROTH option was first presented it was unknown what the adminstrative burden was actually going to be. Many employers were scared away by that thought. Many more were scared away because in reality…most people do not fall into your category so the intended audience is rather small. Most young people do not go over the AGI limit and most young people don’t even contribute fully to their 401k…So what’s the point of adding a feature that won’t work.

      That being said you want to know how to get your company to implement one. Best way to do that is to get everyone that you know who would contribute to one if it was available to contact the HR staff and ask for it. At the same time, talk to your boss, his boss, and his boss about adding it. Keep in mind that when it does get added they may not match on it. Some recordkeeping systems can handle the deferral but can’t handle multiple match accounts or matching from multiple deferral sources. But, if you make 150k then you put 9k into your pretax account and 6k in your roth account. That takes full advantage of your match, gives you some tax deduction, allows you to put money into a roth, and gives you diversity in your withdrawal sources. Personally I’d advice against putting 100% into the Roth even at your young age…no guarantee that they won’t tax the earnings when it comes out (it’s tax law, they can change it any time they want) and if you’re over the AGI limit already then your tax rate won’t vary that much when you retire…historically tax rates have gone DOWN and I don’t see that trend changing.

11. QUESTION:
    Is there a difference between roth 401k and after tax 401k?
    I know that you pay into a roth 401k after tax but isn’t there just a non roth 401k where you get no penalty to barrow against it for certain things?

    • ANSWER:
      There are conventional (pre-tax) 401(k) plans and there are Roth (after-tax) 401(k) plans. Whether you can borrow from ANY 401(k) account depends on the specific plan provisions of that 401(k) plan. Some plans do not allow borrowing.

12. QUESTION:
    How does the “matching funds” part work for a Roth 401k?
    This company contributes .50 for every dollar up to 6% for a 401k. They also have a Roth 401k. So do they match it on a post or pre tax basis? If it’s pre, would I then have a separate 401k for the matching funds?

    • ANSWER:
      That is determined by the company, you have to contact them about it.

13. QUESTION:
    Is the Roth 401k contribution limit pretax or after tax?
    I understand the contribution limit for any type of 401k is ,500 per year. I am wondering if this is on a pretax or after tax basis for the Roth 401k.

    If the limit is after tax, then technically you can contribute significantly more to your account. You would be able to contribute ,385 of your paycheck to your Roth 401k, have it be taxed at 35% to bring it down to ,500. Is this the case? Or can you only contribute 16,500 of your paycheck?

    • ANSWER:
      Wow MJM’s math is completely wrong especially for all those great sources he mentions. Let’s try this again.
      Roth –
      ,385 – taxes (35% from the question) = ,500 (approximately) then 4x growth = ,000 in your pocket
      Traditional
      ,385 goes in then 4x growth = 1,540 – taxes (35%) = ,000 (approx.)
      They come out the exact same. The difference is where will taxes go during this time frame. With a traditional 401k you take on the risk of taxes going up.
      As a side note matching in a Roth 401k goes into a traditional 401k account so the matching is a pre-tax contribution.

      I do want to commend you on the question though because you do catch on to the difference here. The Roth essentially allows you put a lot more money in a tax qualified account than the traditional does. Oh and to answer your question the Roth contribution is after tax. Please let me know if you have any other questions.

14. QUESTION:
    Can I contribute to a Roth IRA if I am covered by a Roth 401k?
    I am under the max dollars requirement to contribute to a Roth IRA but don’t know if I can contribute since my employer has a Roth 401k that I belong to. Can I do both?

    • ANSWER:
      Yes you can. The more you invest for your retirement, the greater the rate of return. A Roth IRA’s main advantage is its tax structure. Contributions are made only from earned income that has already been taxed (and is not tax deductible), but withdrawals up to the total of contributions are federal income tax free, and withdrawals of earnings (anything above the total of contributions) are often free of federal income tax. Saving for retirement is a gift for yourself.

15. QUESTION:
    What are you choosing to build for retirement? 401K Roth IRA?
    I am trying to weigh my options here. I have a 401K and I plan on contributing toward a Roth IRA. I just would like to get more information on what other options are available to me. What is your choice at this time, why and what is your age?
    Thank you in advance.

    • ANSWER:
      I am 21 and started a Roth IRA a couple of years ago. A Roth IRA is a great place for me because the money going into the account is after-tax and I am currently in a low tax bracket. It may not be the best option for someone in a higher tax bracket because they would be paying more taxes on the money going into the account, versus paying less taxes on money coming out of a 401k or a traditional IRA when they are retired.

      A 401k, up to the company match, is by far the best place to put retirement funds because it is basically free money.

      As for other options:
      Cash Value Life Insurance (depending on health and age)
      Annuities

16. QUESTION:
    Can you withdraw your contributions from a Roth 401k prior to 59 1/2 without penalties?
    If I begin putting in money into a Roth 401k now, can I withdraw the money I contribute prior to 59 and a half? I know I cannot withdraw the growth.

    • ANSWER:
      The tax payer relief act of 1997 states you can withdraw early with no penalty, except on the earnings of course.

17. QUESTION:
    What is the best (and lowest cost) brokerage for an individual roth 401K?
    Many brokers (such as Fidelity, Scottrade, and ETrade) offer solo 401K (for self employed) but do not allow Roth contributions.
    I checked Schwab and talked to a rep. He said Schwab does not offer a Roth individual 401K. Is he wrong?

    • ANSWER:
      Charles Schwab is the best I know for that.

18. QUESTION:
    Can you contribute to the maximum on both Roth IRA and Roth 401k if your income is under the limit?
    I know that I can contribute to both Roth IRA and regular 401k to the maximum if my income is under the limit. However, as more and more companies offer Roth 401K, I am not sure if I can contribute to the maximum in Roth IRA when I am already contributing to the yearly maximum in my Roth 401K.

    • ANSWER:
      Absolutely you can max out both. In fact, you should if you can.

      However, I wouldn’t do it quite this way unless you’re in a pretty low tax bracket. If you’re in the 25% bracket or higher, you might consider maxing the Roth IRA, but going with the traditional 401k instead.

      This is something called “tax diversification”. It protects against changes in the tax law in the future. As an extreme example, what if income tax gets completely replaced by sales tax? The tax free withdrawals from your Roth IRA would be pointless, but at least your regular 401k would have enjoyed an upfront tax benefit.

      Like I said, that’s an extreme example, and tax diversification is a long discussion for another day. Whichever your pick, if you max out both, you’re way ahead of your peers. Go for it!

19. QUESTION:
    Can I roll over money in my Roth 401k into a Roth IRA, and then use the money for educational expenses?
    The Roth IRA was opened 5+ years ago, but it has very little money in it. The Roth 401k with my current employer has a good amount of money in it. I plan to leave my current employer before I start school. Links to relevant IRS publications would be helpful.

    • ANSWER:
      The Roth 401k has two parts:

      Roth parts is your after tax money
      401k is your employer conribution with pre-tax money

      To do it, you could transfer of your Roth to the Roth IRA
      The 401k part is transfer to the Roll over IRA.

      And you could withdraw the “principal” not the earning of the Roth IRA for education without paying tax+penalty while you under 59 and 1/2.

      But I suggest find another source of money for your education because tap in Roth IRA early is bad move. I think you know what I mean. THE POWER OF COMPOUND INTEREST.

20. QUESTION:
    What is the difference between a Roth(401k) and a Roth IRA?
    Note I am not referring to a 401k but a “Roth 401k”

    • ANSWER:
      A Roth 401K is offered through an employer, like a traditional 401K. Where as a Roth IRA is purchased individually like a traditional IRA.

      A Roth 401K is pulled via payroll deductions but is after tax like a Roth IRA. Employers can contribute to the Roth 401K. Your traditional 401K and Roth 401K are combined to determine the employee’s total annual contribution (it’s not 401K = 500 and Roth 401K = 00, it’s 500 total = excluding catchup).

21. QUESTION:
    When Rolling over money from a Roth 401k into a Roth ira, Do u have to report it on ur taxes?
    if someone has $$$ in a Roth 401k and they only worked a few months in 2006, they quit the compeny and rollover the $$$ into a Roth ira , when they do taxes for 2006, do they need to report it? and if so on what form?

    • ANSWER:
      Since no before tax money can go into a Roth IRA any portion of the rollover that would be taxable must be claimed as such for the year of the rollover. You should receive a 1099R that should show the taxable amount if any. You would also claim this taxable portion in the same way you would a converted amount on part 2 of the form 8606.

      Report the full amount of the distribution of the box 1 of the 1099R on line 16A and the taxable amount from box 2a of the 1099R on line 16B and write the word Rollover next to 16B.

      The rollover from the Roth 401K will not affect the Qualified Distribution date of the Roth IRA since it becomes basis in the plan
      See Publication 590

      http://www.irs.gov/publications/p590/index.html

22. QUESTION:
    What are the tax implications for Canadians for 401k and ROTH IRA at retirement?
    How do taxes work when Canadians who may have worked in the US withdraw money from their 401k or ROTH IRAs at retirement? Someone told me that a 401k can be withdrawn (and taxed in the US), but when the money is taken to Canada it will not be additionally taxed. However, the ROTH IRA would be taxed as new income in Canada. Is this true? If so, this defeats the whole purpose of the tax free growth provided by the ROTH IRA.

    I am currently working in the US but am a Canadian Citizen and hence dont really know where i will be come retirement (40 years away) so I am not sure as to where I should invest. I am trying to collect details so I can make an informed decision.

    Thanks
    Mathew, I know how the taxes work if you remain in the US. I need to find how they work if you plan to take the money to Canada. Of course I dont know how things will work in 40 years, but how do they work now?

    • ANSWER:
      For US taxes the 401 k disbursements will be taxed at your tax rate when you retire and the Roth disbursements will be tax free. Who knows what the Canadian tax rules will be in 40 years.

23. QUESTION:
    Is it possible to put all money from 401k into Roth IRA while still employed at the company?
    I want to roll my 401k into a Roth IRA. Is it possible to do this while still employed with the same company that provided the 401k?
    I also heard there is no limit on how much can be rolled over into Roth IRA come 2010. Is this true?

    • ANSWER:
      1) The Pension Protection Act of 2006 specifically allowed 401k to Roth rollovers since 2008. The key is whether or not your 401k plan allows distributions while you are still working. Ask your HR Dept. if you can do this. If so:

      2) For 2009, there are income limits as to whether you can do a Roth “conversion”. You must have a Modified Adjusted Income of less than 0,000 (single or married), not including the conversion amounts. In 2010 the income limit will disappear.

      3) There is no limit on how much you can convert, only how much you are willing to pay taxes on. For 2009, any conversion amounts are taxable as ordinary income in 2009. If you convert in 2010, you can pay the tax over 2 years, 2011 and 2012. Look for an avalanche of conversions in 2010!

      4) Funds withdrawn from the Roth within 5 years of the conversion have a 10% penalty unless you’re over 59-1/2 or use the funds to buy a first house (,000 lifetime limit–,000 not 0,000). Earnings on the Roth are taxed as ordinary income if withdrawn in the first 5 years after conversion.

      This is not something for the not-detail-oriented! Talk to your HR Dept. first!

24. QUESTION:
    can a new company with 1 employee set up a Roth 401K?
    I set up a small company last year. By the end of this year the company will have 3 – 5 employees. Can I go ahead and set up a Roth 401K now, though, even with one employee? Thanks.

    • ANSWER:
      I have heard that it is better to set up a Simplified Employee Pension, which would also reduce your taxable income.

25. QUESTION:
    does putting money in your 401k, roth ira and a 529 plan lower your tax braket?
    Just say u made 155,000 a year and a certain % went into 401k like 15,000 and then another 1200 in 529.lowering u to another tax braket?

    • ANSWER:
      You should talk to your CPA, you have a very healthy income and there are some things that you can do to reduce your IRS obligation. Health plan, certain educational plans for children. With a few guide lines you can even give some of it away and and reduce your income, and not just to the heart fund. You can make a gift to one of your children and reduce your taxes that. I am not you, but if I had the income of 0K and wanted to enjoy most of it I would buy a second home. It has all of the tax advantage as a first home but remember that it increases in value, I would opt for an old farm as I love to hunt and like being in the country. We can try to give you answers in here but the truth is that with you CPA he can see everything that is going on and can give you advise that we can not, if anyone tells you otherwise they are not being fair to you.

26. QUESTION:
    How can I rollover my Roth 401K from my old firm to my new firm’s traditional 401K plan?
    I have a personal choice retirement account with Schwab that’s 20% Roth 401K and 80% Traditional 401K. I recently switch jobs and my new firm does not offer the Roth 401K. What are the consequences of rolling over? Can I recharacterize my Roth 401K as a traditional 401K and get back a larger tax refund?

    Thanks for your help.
    I have a personal choice retirement account with Schwab that’s 20% Roth 401K and 80% Traditional 401K. I recently switch jobs and my new firm does not offer the Roth 401K. What are the consequences of rolling over? Can I recharacterize my Roth 401K as a traditional 401K and get back a larger tax refund?

    Thanks for your help.

    And yes, there is such a thing called a Roth 401K and I am not confusing an IRA w/ a 401K.

    • ANSWER:
      My understanding is that you generally would not move your Roth 401k to a traditional 401k. You will most likely need to move it to a Roth IRA unless you can leave it where it is.

      If you don’t have a Roth IRA and you don’t qualify for one, you should consult your financial planner. (Don’t cash out!)

      I’m no expert but I thought could help a little more than then the guy who claimed there is no such thing as a Roth 401k!

27. QUESTION:
    How will the recession or dollar devaluation affect my 401K &Roth investments? Should I sell off, buy euros?
    Considering all I’m reading about this recession, I don’t want to lose gains or especially capital I’ve invested into SEP, IRA, and rollover 401K accounts. If the stock market crashes or if the dollar devalues , what will happen to those investments? Could I lose my capital ? Should I cash them now and put that money into a money market account? Or perhaps buy euros or yen?

    • ANSWER:
      You`re already on the low side of a bear market, unless, Heaven forbid, we end up in a full-scale depression. We are already in a recession, as reflected by the stock market and other financial gurus (Warren Buffet, for one). A lot of damage has already been done to your portfolio, and the dollar has already de-valued. How low it will go? You, I and everyone else would love to know. Yes, worse case scenario, you can always lose capital with ANY investment. I won`t tell you how to manage your finances, but I will tell you this….Don`t liquidate. You`re going to pay some stiff penalties and taxes right off the bat if you do, and that on top of your (already) losses. Don`t buy Euros, because the dollar is ALREADY de-valued and your buying power is LESS. My opinion, Your SEP, IRA, and 401K ?? Ride it out, and wait for the upturn.

28. QUESTION:
    I’m thinking of changing my 401k at work to a Roth 401k going forward?
    If I were to do that, would the new Roth contributions go into a different account of my current 401k, so that I’d be able to separate what is pretax and what is post-tax?

    • ANSWER:

29. QUESTION:
    How, or is it possible, to roll at Roth IRA to a Roth 401k?
    I just got started at an employer that has a Roth 401k. I already have a Roth IRA that I started from my job in High School. I know its different but I rather build the 401k than the IRA. So how exactly do I go about this?

    • ANSWER:
      You don’t. They’re two seperate accounts.

30. QUESTION:
    If i switch to a Roth 401K, can i still contribute to my standard Roth IRA?
    I currently have a 401K through my work, and i have my own personal Roth IRA. I am contributing 6% in my work 401K since that is what my company will match, and i am maxing out my personal Roth IRA. If my company offers the new Roth 401K and i switch to it, what will that do to my current Roth IRA?

    • ANSWER:
      Hi, i recommand you a good and basic tutorial for investing. it covers all Issues related to your Investing and everything around it.

      http://www.investingtutorial.info/

      wish it will help you.

      Good Luck , Best Wishes!

31. QUESTION:
    401K and Roth IRA withdrawal tax implications?
    I am age 61 and would like to use my 401K and Roth IRA money to buy a house. If I withdraw this money, it it considered income or can I just use it for the down payment and not owe any tax?

    • ANSWER:
      All 401k withdrawals are taxable to you regardless of the reason for the withdrawal.

      “Qualified” withdrawals from a Roth IRA are not taxed. The Roth IRA account had to be open for five years (starting Jan 1 of the year the account is opened) before you can take contributions out tax-free (since you are over age 59.5).

      Any funds converted to the Roth from other retirement plans has to sit in the account for five years, in order to avoid taxes.

32. QUESTION:
    do i have to get a 401k/ roth ira and/or money market investments to boost up my financial investment gains?
    i have a retirement plan from being a city employee, 457 deferred compensation through ING. i have it in part savings and part stock. do i still need a 401k/ roth ira and/or money market to boost up an investment gain?

    • ANSWER:
      a 401k is not an option for you. A Roth is. Also a money market.

      The big advantgae of the Roth is that all money earned in that account is tax free when you retire. Depending on you marginal rate when you retire that can mean an extra 15% to 28% for you at that time. And if you are young enough and put 00 a year into your Roth, you may be looking at an annual income of 0,000 a year when you retire–tax free.

      A money market account is not really an investment. It is a safety net for those unexpected expenses that sometime jump up at you. Everyone should have at the bare minimum of 00 in one in my opinion, just in case. ,000 would be even better.

33. QUESTION:
    What can I do with my Roth 401K?
    I am currently investing the yearly max (.5K) per year into my Roth 401K and am planning to quit my job in a couple of years, in order to open a business.

    Can I keep the money in the company’s Roth 401 K if I’m no longer working in that company?

    What are my options?

    Will I get hit with the 10% early withdrawal penalty if I can’t keep it in a Roth 401 K?

    Please help.

    • ANSWER:
      Usually most plans will allow you to remain ” on the books” when you leave your current employer… but no more contributions.
      A much better plan ( already mentioned) is to roll it over into a self- directed ROTH IRA ( Fidelity, T.Rowe, etc.) You will then be able to select from a full array of investments…or even get into selecting/trading in individual stocks or ETFs. The only drawback would be in the amount you could contribute yearly… $ 5000., but if you establish your new business, you can also open a SEP IRA.( self-employed)..at any rate you will never be hit with a penalty or taxed unless you just close the 401 and keep the cash.

34. QUESTION:
    Should I have my 401k and Roth IRA in target date funds?
    I currently have my 401k in T Rowe Price 2040 Fund. I want to open a Vanguard Roth IRA account. I was thinking about opening a Vanguard 2045 Fund. Is it a bad idea to have both your 401k and Roth IRA in target date funds. I wanted to to do this for simplicity of not having to worry about rebalancing and diversification. Do I have to many eggs in 1 type of basket.

    • ANSWER:
      The short answer is “yes”. The reason is your preference. You seem to know pretty well what you want. You say that you are looking at target date funds “for simplicity and not having to worry about rebalancing and diversification.” Your own preference is most important as long as you don’t do something silly. Target date funds are not silly since they include a diversification across asset classes that is set up according to your risk preferences. This also means that you would not have too many eggs in one basket. Target date funds make sure that you have the right amount of eggs in each basket. Good luck!

35. QUESTION:
    Questions on moving 401K to Roth IRA CD and taxes?
    I moved some money last year from a 401k funds to a Roth IRA CD at a bank. However, I am wondering how this works for tax purposes. I did make a little interest on it. However, it was less than 200$. How does this work for tax reasons? Is the whole amount taxable, the interest, or none at all?

    • ANSWER:
      depends on the type of Roth– the tax free Roth you would have had to pay the tax on the amount you converted
      if it is a reg IRA, the same type as your 401 K, the interest accrues and you pay when you take distribution

36. QUESTION:
    How can I roll my 401K into a Roth IRA without having to pay tax or a penalty on your retirement?
    I’m planning to leave my job to be a stay at home mom. I have a 401K through my job. Is there a way I can roll that into a Roth IRA without having to pay taxes or penalties for moving my retirement?

    • ANSWER:
      Only if it is a Roth 401(k).

      Otherwise just roll it into a traditional IRA. There will be no taxes if you do that. You may be able to do a roth conversion later, if it works out to be beneficial to you.

37. QUESTION:
    What if I have 401K and Roth IRA both?
    I am wondering what is the limit contribution for me in that case?
    I am currently have set up a ROTH IRA on my own with an investment company and job is offering a 401K.
    How much total I am put in to both account?
    I am in 16% tax bracket.
    Married, file jointly with my husband. Total we make lower than 40,000 per year.

    • ANSWER:
      Your Roth contribution has nothing to do with your 401k. Contribute as much as your employer will match to your 401k. As for your Roth IRA, you and your husband can each have one and contribute the maximum if that is your income. The maximum for 2008 is 00 per person if you are under 50 and 00 if you are over 50. A couple things to consider when your income is that low is: First, if you end up needing the money contributed, there is a large tax penalty (10%) if it has already been reported on a tax return. Second, you must have the same or more dollar amount of “earned income” as the amount you can contribute. Earned income is money earned while working. Investment returns, real estate income and certain other forms of income are not considered earned income.

38. QUESTION:
    Can I use money from my retirement plans (401k, and Roth IRA) to buy a primary residence? how?
    I have two retirement accounts a 401k and Roth IRA. What kind of paperwork/work would be involved in using that money to purchase a primary residence? When I sell, can I put the proceeds back into the retirement account?

    • ANSWER:
      You may be able to borrow money from your 401(k), depending on your plan’s rules. If you do so, you may have up to 10 years to pay the money back, since you are borrowing it to purchase a home.

      One caution with borrowing from your 401(k) – if you change jobs, either voluntarily or involuntarily, you may be required to pay the loan back within 30 – 90 days or risk having the loan become a premature distribution. If this occurs, and you are under 59.5, you will pay federal income tax plus a 10% penalty. Some states also charge income tax and penalties. So check with your plan to determine if this is true.

      The same tax and penalty situation applies to withdrawing (rather than borrowing from) a 401(k) plan, so that’s not a good option. You will probably end up with, at most, 65% of the money that you withdrew, after taxes and penalties. So it’s usually better to borrow more money against the house instead of withdrawing from your 401(k) plan.

      For the Roth IRA, you can withdraw contributions to the plan at any time. So if you put k in over the past 5 years and the account is worth k now, you could withdraw up to k with no taxes or penalties.

      If your Roth IRA has some money that was converted from another IRA or a 401(k), and the Roth IRA account is at least 5 years old, you can withdraw the converted amounts without taxes or penalties.

      If you are a first time homebuyer, you can also withdraw up to k in gains without penalties, but you will have to pay taxes on the money.

      Any withdrawals from retirement accounts are permanent. You cannot put the money back into your account after you sell the house. If you take a loan from a 401(k) plan, you will need to pay back the money, or it will become a distribution.

39. QUESTION:
    Question regarding 401K and Roth IRA limits?
    I am over 50. I file married filing jointly with a total combined income of under 7,000. I contribute 10% of my income to a 401K plan at my work. Can I still contribute the full 00 per year to a Roth IRA, or are there restrictions on how much I can contribute to a Roth IRA because I also contribute to a 401K?

    • ANSWER:
      You can contribute the maximum to both.
      The 401K is not yet taxed, and the Roth is, so they are different entities.

40. QUESTION:
    What are some ways to reduce my taxable income other than contributing to a 401k, IRA, and Roth?
    I don’t want to participate in my companies 401k, however I still want to make regular contributions towards and investment for my future as well as reduce my taxable income. Each year I contribute my maximum contributions into my Roth and IRA and will continue. I need an alternative for my 401k contributions. I want more control and transparency.

    • ANSWER:

41. QUESTION:
    allowed to recharacterize contribution from my traditional individual 401k to my Roth individual 401k?
    I have a traditional individual 401k (aka ‘solo 401k’). I’ve recently opened a new Roth individual 401k. Am I allowed to recharacterize this year’s contribution from my traditional individual 401k to my Roth individual 401k? If so, how would I do this considering that I’ve already bought stocks with the funds in the former?

    • ANSWER:
      Yes, it’s very much possible. You have to file tax form. The funds can be transferred, and you will be required to pay taxes on the original contribution, assuming it was a deductible traditional IRA. Call your accountant for more details./

42. QUESTION:
    Invested in Traditional 401k, should I change to Roth 401k?
    I am 28 years old, with ,000 invested my company’s traditional 401k plan. My company is now offering a Roth 401k. Is it to late to swtich? Should I switch to Roth? Should I be contributing to both traditional and Roth?

    • ANSWER:
      Do both… keep your traditional 401K going and open the Roth 401K.

      I think it is possible now to convert the traditional 401K into Roth 401K
      but I don’t remember the details…

      The difference between the two is this>

      A Traditional 401K is funded by contributions that are not taxed yet.
      In other words they deduct the 401k contribution from your gross pay and then tax the remaining gross pay and you end up paying less in taxes. The taxes are due when you retire and draw from your 401K
      but it is possible that you will be in a lower tax bracket and you actually save on taxes.

      A Roth 401K is funded with after tax money and you can’t be taxed again on your contributions. You are still taxed on any investment gains that you may have but the money you put in is always yours, tax free. You also have more freedom in a Roth account then with a traditional 401K because that money is esentially already bought and paid for…

43. QUESTION:
    401k rollover to Roth IRA for married couple both age 60, Does it make financial sense?
    With the new rule in effect as of March 2008 allowing a direct 401k rollover to Roth IRA, could you shed some light on this scenario: A couple, both over 60 files jointly and will be earning less income when retired. Currently both are working and earn 100,000. When retired their income will be 46,000. They have 300,000 combined in their 401k and would like to know if it makes financial sense to rollover to a Roth Ira. Thank you for your help.

    • ANSWER:
      The short answer is – it depends on the tax rate. Let’s take 3 scenarios: Tax rates stay the same, your taxes are lower in retirement and finally your taxes are higher in retirement.

      Assumptions:
      1) You pay for the conversion out-of-pocket (as opposed to funding it with monies in the 401(k)).
      2) If you do not convert, you invest what you would have paid in conversion costs in a taxable account.

      Currently, your marginal tax rate is 28% and in retirement it will be 25%. Paying 28% now, when you can pay 25% later makes a ROTH less attractive. If the government decides to raise taxes, when you retire, a ROTH makes more sense.

      Now, there are other subtle differences between the types of accounts, like required minimum distribtions, that effect estate planning. This example does not consider this.

      You can make a case either way if the government will raise or lower taxes in the future. Since we do not know with certainty, I suggest another option. Rollover 1/2 of your account. Keep some in a pre-tax account (401k) and some in a post tax account (ROTH).

      This is a different kind of diversification – tax diversification. See the source that I listed from vanguard.

44. QUESTION:
    I have Roth 401K balance from my previous job, where should I roll over to?
    My current employer’s 401K plan does not accept Roth 401K roll over

    • ANSWER:
      you should be able to roll it into a Roth IRA. this will give you more investment options, and should let you avoid any penalties.

      i would suggest calling your broker and talking to him about this.

45. QUESTION:
    Can I contribute to my 401k and a roth IRA?
    I have 00 in my roth IRA for 2006; and another 4M for a 401k..

    Does a 401k count as an IRA? Because the 401k money has already been taken out of my paycheck and is not part of my w-2 wages. But do I claim it as an IRA?

    I just don’t know what I need to report to the IRS. If I put the 401k income as an IRA (in addition to the Roth IRA) it tells me I have over contributed to the account and must withdraw or I can’t use my roth.

    >help<

    • ANSWER:
      Hi Mary,

      First thing is 401k is NOT a IRA type account. It is a retirement plan account offered by your employer while IRA is individual retirement account.

      So do not count 401k towards IRA contribution. In fact 401k maximum contribution is 000 for year 2006 irrespective of your IRA contribution.

      If you are eligible, you can contribute up to 00 to IRA accounts in total.

      In case of Roth IRA, typically you do not need to report to the IRS as your broker/bank (which holds your roth account) informs IRS about it via form 5498.

      Check this comparison of 401k vs Roth IRA:

      http://theusefulinfo.com/finance/compare4R.html

      Not a legal adive.
      - Infoman

46. QUESTION:
    401K to Roth IRA conversion – Penalty and tax implications?
    I am 39 years old and filing taxes as married jointly. My wages were 60K in 2009 due to unemployment. My AGI will be about 100K from now onwards. Is this a good opportunity to convert my 401K from previous employer into Roth IRA as I will be in lower tax bracket? Will there be any penalties as the conversion is from before-tax to after-tax contribution?

    • ANSWER:
      If it is done correctly, then there will be no “penalty”. There will be ordinary income tax on the amount converted. In your case, the federal tax rate will be 25%; the state tax rate varies from state to state.

47. QUESTION:
    Does rolling over a 401k into a Roth IRA affect CA unemployment insurance benefits?
    I was laid-off in June and have been collecting CA unemployment insurance benefits ever since. I want to rollover my Fidelity 401k from my old employer into a Vanguard Roth IRA, which will mean paying taxes on this “income” right now. What I’m not clear on is whether this “income” will be counted against my unemployment insurance benefits and cause me to lose any of them. Anyone know?

    • ANSWER:
      It doesn’t. Rolling funds from one retirement account to another is NOT income. It is taxable at the Federal level, but it has NO impact on income based benefits.

48. QUESTION:
    What is there a maximum amount I can contributed to both my Roth IRA and 401k?
    For 2007 I contributed ,000 in my Roth IRA and ,500 in my 401k. Did I exceed the Maxium amount?
    Is there a combined amount that one can contribute to the plans? Or are they seperate?

    • ANSWER:
      You’re fine, you hit the max on both. For 2008 you can put 00 in the Roth.

49. QUESTION:
    Can I move my 401K money into Roth IRA after I got laid off from my company ?
    I’m 57 year old and have 1 Million Dollars in my 401K with my current company. My job will be terminated at the end of this year 2008. Can I move money out of my company 401K account into a new Roth IRA account with a Discount Brokerage Firm ? If I can do that, what is the tax consequences ?

    • ANSWER:
      It would be a 2-step process.

      First you transfer the 401(k) to an IRA. (Not taxable.)
      Second you decide when, how much and how often you want to roll the IRA money to a Roth IRA. (Taxable.)

      Each time you roll money over, you start a new 5-year clock on that particular Roth contribution. (If you withdraw any of the money before 5 years is up, you owe a 10% penalty.)

      Personally, I sit down and look at my financial situation for the year. If I am in the 15% tax bracket, I move as much of the money to a Roth until I’m touching the 25% tax bracket.

      Since I put a lot of the money into the 401K in the 25% and 28% tax brackets, I feel like I’ve beat the system. I had to switch careers and start over on salary, so I had quite a bit of 10% and 15% tax bracket to work with the first few years. Now it depends on how much capital gain I’m recognizing and whether or not I’m itemizing….

      My ultimate goal is to lower my total IRA assets to a reasonable amount by the time I retire so that I pay 15% tax in retirement as well.

50. QUESTION:
    Can I transfer some of my 401k money to my roth IRA?
    I’m currently employed and i contribute to 401k at my job. I also have a Roth IRA account. I need to know if it’s okay to transfer some of the money I have in the 401k to my roth IRA.

    • ANSWER:
      that last comment is not right, a roth is the best thing going today! as long as you use a broker to make the transfer there will be no penalty, only tax due on the amount you remove. as long as you don’t take the money out in your name your safe. also yyou are limited to the amount you can put in the roth.by the way, try www.daveramsey.com.
      a world of info that will help you retire with a pocket full of money.