401k
401k Information

Ira Rollovers

We thought we would all be in lower tax brackets when we retired; therefore tax deferral was the plan. However, tax rates are likely to be as high when we retire as when we are working; therefore the benefits of a Roth IRA become more attractive.

A Roth IRA is a retirement plan that allows individuals to make tax- 00004000 deductible contributions of 00, to the extent of their earned income. This means individuals may contribute the lesser of income they have earned during a particular tax year or 00. Contributions made to a Roth IRA are made after-tax (meaning they are not tax deductible when made). These contributions, and any growth in the value of the Roth IRA, are tax-free forever.

Under the tax laws applicable to Roth IRAs, your contributions must be made as an individual taxpayer; however, they are not taken as a tax deduction on your individual income tax return (From 1040).

Since its inception in 1997, the Roth IRA has become a hugely popular investment vehicle. Like the traditional individual retirement account, the Roth IRA is a personal savings plan that offers tax advantages to set aside money for retirement.

Investments in a Roth IRA compound tax deferred, but what provides a unique advantage for the Roth IRA is that, once an individual has reached the age of 59% and his or her account has existed for more than five years, all withdrawals are tax-free.

Roth IRAs for the taxable year can be opened and/ or funded any time prior to the due date for your individual Form 1040 tax return, excluding extensions. This means any time prior to April 15 of the calender year following the tax year in which the deduction is being considered. This due date is applicable to both deductible and non-deductible Roth IRA contributions. Just remember, filing for an extension of time does not extend the time period allowed for contributions.

Earned Income

You can qualify to participate in a retirement plan if you have earned income (compensation) for the tax year in question under the following conditions:
If you earned profit in your business
If you paid yourself wages as an employee of your business
If you paid yourself guaranteed payments – even if your business earned no profits

Contributions

You can contribute up to a maximum of 00 every year (00 if you’re age 50 or over), up to hte extent of 100 percent of your earned income every year, unless you are prohibited from contributing that year because you generated too much modified adjusted gross income (MAGI) during that year and are therefore subject to the MAGI.

Anyone who has earned income and falls within the MAGI limits can establish a Roth IRA. Unlike the traditional IRA, the Roth IRA has no age limit for contributions, so individuals can continue ot contribute as long as they like. (Note: In a traditional IRA, individuals can contribute only until age 70%)

Contribution to a Roth IRA are not tax deductible. Your contribution is made with after – tax dollars. However, the advantage of the Roth IRA is that you will never pay taxes on your earnings or withdrawals (distributions) as long as you have reached the age of 59.5 and your account has been open for at least five years. Annual contributions can be taken out at any time with no tax consequences. All other funds (e.g., earnings, conversion funds) can be taken out penalty-free if the account has been established for five years and the individual is over the age of 59.5. Non contribution funds taken out without meeting these requirements are taxable and subject to a 10 percent penalty. Furthermore, there are no mandatory withdrawal requirements, as there are for traditional IRAs.

Modified AGI Limits

You may contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income (Magi) is less than 0,000 (0,000 if you are married and file a joint return, and ,000 if you are married, lived with your spouse, and file a separate return). The amount you may contribute to a Roth IRA is gradually reduced of your MAGI is between ,000 and 0,000 (between 0,000 and 0,000 if you are married and file a joint return, and between [POSTCONTENT] and ,000 if you are married, lived with your spouse, and file a separate return).

The amount you may contribute to a Roth IRA is reduced by contributions you make to a traditional IRA. The amount you may contribute to a Roth IRA also may not exceed your taxable compensation. You may continue to make contributions to your Roth IRA after reaching age 70.5.

Frequently Asked Questions

  1. QUESTION:
    Ira Rollovers???
    This year I took two separate IRA’s out of one bank (they treated them like withdrawals – made out check to me) and within one day, I took each of these IRA’s and put them into another bank as an IRA rollovers. Did one in Janary and one in May. Now I’m being told that you are only allowed to do one rollover like that a year (you supposedly can do as many direct transfer rollovers or trustee to trustee rollovers you want). Is this so and if so, what do I do now – how does the IRS penalize you for something like this.

    • ANSWER:
      It seems that your allowed a rollover once in a years time from each of your IRA’S. Therefore if you had 2 separate IRAs you should be allowed a separate rollover from each (see page 25 IRS publication 590).

      How did the 2nd bank treat the 2nd rollover?
      If they didn’t treat it as a rollover you should argue with them using the example on page 25 of the attached IRS publication.

      Of course if the 2 withdrawls were from the same IRA then the bank is right :(

      You say the 1st bank treated them as withdrawls (- not rollovers). see if they can correct this as well. Did the 1st bank withhold 20% tax. If so did you add an additional 20% when you made the rollover deposit at the 2nd bank?

  2. QUESTION:
    How are pre-tax rollovers to IRA taxed?
    Last year I rolled over an old 401(K) plan into an IRA.

    This year I want to roll over a 457 plan (which is like a 401K but for government agencies) to an IRA.

    Both are pre-tax contributions.

    How are these contributions taxed at withdrawal (if I withdraw after age 59.5).

    Do I need to track every trade I make OR at the time of withdrawal the current income tax applies to whatever is withdrawn?

    Also, in the even of capital losses are these considered while the tax is imposed?

    • ANSWER:

  3. QUESTION:
    Which govt unit has oversight auth over 401k rollovers to an IRA, as far as the way it was handled?
    This is being re-opened for for further comment by one of the responders.

    After the request for a rollover was submitted to the administrator, it took 3 additional requests in a span of three months before the checks were received. It was claimed by the administrator that checks were issued but I never received them. On the third request, I requested an overnight delivery and successfully received the checks the next day.

    I would like to lodge a complaint with the proper oversight authority.
    thanks very much

    • ANSWER:
      That would be the US Department of Labor. I’ve attatched a link to provide you with contact details.

      Be prepared to show that your address was correct on the paperwork submitted.

      Before you call or contact the DOL you may want ask for supporting documentation that the checks were indeed sent. I’ve been a 401k consultant for 15 years and have had a couple of instances of this happening…but only a couple. More often then not it’s a bad address or the distribution simply wasn’t processed timely that was the reason for delays.

      If it’s a bad address issue then it’s dependent upon whose fault it was…was the writing on the paperwork illegible? Did the participant move after submitting it and fail to have mail forwarded? Not saying this is the case for you…just things that happen.

      However, if you did everything right and they simply messed up the address on their own or failed to process the distribution in a timely manner then you may be entitled to additional income. Depending on the size of the distribution it might be worth pursuing. Especially given that you contacted them three times. In that event, you’d contact the DOL for help. Take 1.5 percent of your distribution amount and see if it’s worth it for you to continue the fight.

      If the DOL says they can’t help you then you’re out of luck…unless your distribution amount is over a million dollars it’s not worth hiring an attorney for.

  4. QUESTION:
    What does IRD stand for? The context is “Net Unrealized Appreciation is IRD” talking about IRA rollovers.

    • ANSWER:
      IRD stands for Income in Respect of Decedent.
      I = Income
      R = Respect
      D = Decedent

      It is income earned by a person that is not received until after they died. It is usually included on their final income tax return.

  5. QUESTION:
    Choices for 401K and rollovers when leaving a job and having maxed out IRA for the year?
    I have seen somwhat similar questions but not this. I am probably going to leave my job in a few months to go to school. I have 2 IRA’s Traditional and Roth that are maxed out for 2007.

    My question is, should I bother putting cash into my current employer’s 401K knowing that I will leave in a few months and will most likely not go to another job with a 401K option?

    I know I can just leave it there but what are my options for rollover? I already maxed out the IRA for the year so what would I be able to do with it?

    • ANSWER:
      It doesn’t matter that you maxed out your IRA contributions. Rollovers and qualified transfers are in addition to your contribution limits. You can roll over directly into a traditional IRA. If you are eligible, and it makes sense mathematically to do so, you can then convert it to a Roth IRA. Most financial advisors can do the calculation to help you determine this, and will do so free of charge.

      Whether or not you move to another job offering a qualified plan, it doesn’t make sense to have the old funds in an employer-sponsored plan. All you are doing is limiting your options and control. ALWAYS roll it into an IRA.

  6. QUESTION:
    How can you get withholding back from IRA rollover?
    My son’s friend had a retirement plan at work, (a SEP, I think) and left his job. The AG Edwards broker’s assistant called and told him he had to take the money if he wasn’t going to add to it anymore. The kid didn’t know his options and got a check, minus 20% withholding and another 10% for the early withdraw penalty. He then endorsed the checks and put them into his regular IRA as a rollover. I know the rollover isn’t taxable, but what about the 30% that was sent to the IRS? American Funds said it’s too late to get it back from them. Please help. Thanks.

    • ANSWER:
      When he does his tax return, he will calculate any actual tax due. He’ll show the withholding taken from the IRA added to the withholding from any jobs that he had, and if more was withheld than he owes, he’ll get it back as a refund from the IRS.

      The only problem here is that if he just deposited the checks into a rollover IRA, then he only rolled over 70% of what he withdrew, so he’ll owe taxes and the 10% penalty on the 30% he didn’t roll over. The only way to avoid that would have been to put in enough money to the rollover IRA to cover that.

  7. QUESTION:
    What are the ramifications of cashing out an IRA Rollover Early?
    My husband has been unemployed for nearly 8 months. Our growing credit card balance makes me nervous. I realized this morning that I have a bit over ,000 is an IRA Rollover that I could cash out. I know that there would be taxes and fees associated. What would that look like?

    Thanks in advance for answering my question.

    • ANSWER:
      You will pay taxes on the withdrawl at your regular tax rate.
      Plus you will pay a 10% penalty.
      Keep some money handy for tax time, unless whom ever writes you the check keeps some to help you pay for your taxes.
      /

  8. QUESTION:
    Is there any advantage to rolling my 401k into a rollover IRA instead of my existing traditional IRA?
    I have an existing traditional IRA and two 401k’s from previous companies. I’d like to consolidate accounts.

    Is there reason I should roll the 401k’s into a rollover IRA instead of directly into my existing traditional IRA?

    Are there any consequences regarding maybe later converting the IRAs to Roth IRAs later?

    • ANSWER:
      The only thing you want to treat differently is any company stock from your 401k. Other than that it really does not matter where you put it and there is a lot to be said for having it all in one place.

  9. QUESTION:
    Rollover IRA from old job 401K Can I add money to this and what is the tax implication?
    I have a Rollover IRA from a previous employer’s 401k plan. Can I add money to this and wha is the tax implication? Does monies added become tax deferred until retirement? Do I need to open another account?

    Thanks and Happy Holidays to all………….

    • ANSWER:
      If your Rollover IRA is separate from your other IRAs (if you have any), you can easily move it into another employer sponsor retirement plan. If you make contribution out of your own pocket (not from your paycheck) into your Rollover IRA, you lose the right to move your Rollover IRA into another employer’s retirement plan.

      In all IRAs, your investments grow tax-deferred. If you add money to it, you won’t pay tax until you withdraw it.

      If you don’t have your own IRA (beside the Rollover IRA), you should start a Roth IRA (if your income is below 0,000). In 12 months after you started the Rollover IRA, you can roll the assets from the Rollover IRA into a Roth IRA. Any withdrawals from Roth IRA are tax free after age 59 1/2.

      For more information about IRAs, check out this blog: http://obe231.blogspot.com

  10. QUESTION:
    What are the penalties for withdrawing money from a rollover IRA?
    I need to re-do the bathroom in my townhouse before I am able to sell it. Fortunately, I discovered K sitting in a Rollover IRA that I totally forgot about! I have plenty of money in a 401K, so I am not concerned about the Rollover IRA from a retirement perspective. I’d like to pull the money out and use it towards re-do’ing the bathroom.

    That said, how much in penalties should I expect to pay withdrawing the K?

    • ANSWER:
      whatever 5k additional salary would be
      AND a 10% penalty = 0

      so 15% bracket – you’re looking at ,250 MINIMUM

      sorry

  11. QUESTION:
    Can your repay a withdrawal from a rollover IRA to avoid penalties?
    I need to take some cash from my rollover IRA and was wonder what the rules are regarding repayment. If I take out 00 but the put 00 back in say the next 12 months, can I avoid penalties or at least avoid the income tax?
    The distribution would be to cover a shortfall caused by my extended maternity leave (which was last summer) and recurring illness. The illness qualifies as a disability according to SSA but I am not willing to give up and stay home yet, so I don’t think I could take a disability distribution.

    • ANSWER:
      You can withdraw funds from your IRA for up to 60 days tax-free. It’s really important to remember that you have to repay the funds within 60 days to avoid paying income tax and the 10-percent early-withdrawal penalty.

      If you have more than one IRA, you can only make a withdrawal once within a one-year period from each IRA.

      There are exceptions, however, if you’re withdrawing for a first home purchase, certain medical expenses, college expenses, etc. These are very limited exceptions, so I’d need to know more info before giving an accurate answer on these exceptions.

  12. QUESTION:
    I have a IRA rollover account and I took some funds for a deferred Annituy,do I have to pay taxes on this.?
    Took the money out of the IRA rollover to be put into a Annitity.

    • ANSWER:
      If you are under 59, then you will likely have to pay taxes and a 10% penalty. Stay away from the “financial advisor” salesman who advised you to do this. Not only have you lost money in taxes and penalties, but for 95% of people, an annuity is a BAD investment. Most people do not need the “tax shelter” that the insurance salesmen say it provides.

  13. QUESTION:
    Should I convert my Rollover IRA to an existing Roth IRA?
    I currently have two IRAs, a Rollover IRA worth ,100 and a Roth IRA worth ,000. They are both at the same brokerage.

    Is it wise for me to convert my Rollover IRA to my current Roth? What kind of penalties and taxes will I have to pay? Is there a better way to minimize taxes? Should I have the tax withheld or should I pay from the taxes/penalty from an outside source rather than from the IRA?

    My current gross income is around 45k and in the 25% tax bracket.

    • ANSWER:
      Here’s the situation:

      1. Converting to a Roth does not have a penalty. All you will owe is income tax on that money, so….

      00 x 25% (your tax bracket) = 75 extra taxes you will owe

      2. It does make sense to convert this if…
      a. you have enough money to cover the tax bill
      b. you expect your tax rate to rise in the future (in other words, when you retire, you think your tax rate will be higher than it is now
      c. you want a source of tax free money when you retire

      3. Another strategy is this: you could convert a portion each year. Since this money is taxed as ordinary income, you could convert a small amount each year so it doesn’t bump you into a higher tax bracket. Also this strategy would ensure that you are not shocked by your higher tax bill at year end

      4. Once you make over 0,000, you are no longer eligible to convert (this law is changing in 2010)

      5. DO NOT, I REPEAT DO NOT WITHHOLD TAXES! take care of them yourself at year end. The reason for this is the following: if you convert lets say 00 and withhold 20% or 00, the 00 withheld goes straight to the federal government. Well, guess what? Since that money did not go into the Roth, the withholding itself is now subject to taxes PLUS a 10% penalty. Very bad deal.

  14. QUESTION:
    How do you rollover a 401k into an IRA if there is a loan against the 401k?
    I just got laid off and I have to pay back k into my company 401k in a month.

    What are my options so I avoid the tax and penalties if I don’t pay on time? I heard I can rollover the difference into a rollover IRA. Is this true?

    • ANSWER:
      If you do not payback the loan, then unfortunately it will become a taxable distribution. This means that when you file your income taxes the outstanding loan balance will need to be included in your Gross Income. How this affects your return will depend on what tax bracket you fall into. Also, depending on your age, you may have to pay a 10% penalty on the distribution (,400).

      For more information, I would seek the opinion of a tax professional on your individual tax situation.

  15. QUESTION:
    What can I do with my money in a rollover IRA?
    I transfered money into a rollover IRA from a 401k but it’s just sitting there. How can i make it grow or how can I use it?

    • ANSWER:
      This is one of the greatest opportunities in your lifetime to maximize your retirement. You will no longer be held to a small & many times poor selection of Mutual Funds.

      Hopefully your 401K is with a broker like Charles Schwab, Fidelity Investments, Ameritrade or a good no load Mutual Fund Company.

      Here’s your best bet;
      Read: Mutual Funds For Dummies

  16. QUESTION:
    Convert from Rollover to Roth IRA? How much taxes do I have to pay?
    I currently have 2k in a rollover IRA, & have read its best to have a Roth. If I convert, how much do I have to pay in taxes next year? Should I pay it out of pocket or out of the Rollover IRA?
    Some facts: 23 yrs old, will contribute 0 to the IRA this year & my AGI is around k (I know the amounts are small, but I’m doing the best I can!)

    • ANSWER:
      1- if you still work for the same company you have that 401k with – you can’t roll it anywhere.
      2-why on earth would you want to voluntarily lose 25-30% (tax and early withdrawal penalty) by converting it from pre-tax to post tax
      3-if you HAVE left the company -just roll it over to a regular IRA – you won’t lose any of the money

  17. QUESTION:
    can you rollover 401k into an existing roth IRA?
    I have a 401k with my job and a Roth IRA. I’m planning to leave my job soon (for school) so can I rollover my 401 into the current Roth IRA since it would be less than the annual contribution limit (about 00). Or do I have to open a “Rollover IRA” and then maintain two separate IRA accounts?

    • ANSWER:
      No, you cannot directly roll a 401(k) into a Roth. Set up a (conventional) rollover IRA. In 2010, a tax “window” will open to convert it to the Roth if you so choose.

  18. QUESTION:
    Can a collection agency go after an IRA rollover?
    Can a collection agency go after an IRA rollover after a possible judgement?

    • ANSWER:
      From everything I’ve read no. Even if you file for bankruptcy retirement accounts are protected.

  19. QUESTION:
    When converting from a Rollover IRA to a Roth IRA, is the money from the 401k rollover non deductable?
    I’m doing my taxes and I’m wondering if any of the money in the traditional IRA I converted to a Roth IRA in 2005 is treated as a non deductable conversion. ,400.00 was rolled over from a former employer 401k into a rollover IRA in 2002. Is this money treated as non deductable or do I have to pay tax for conversion purposes to the Roth IRA on this portion of the total amount I converted as well?

    • ANSWER:
      What you need to figure out is whether any of the original contributions to the 401k were after tax dollars. If they were, they would not be taxable on the Roth conversion. Your 401k statement will usually seperate pre and after tax contributions. If all of the contributions to the original 401k were pretax dollars than the total amount of the conversion is taxable in the year of the conversion.

  20. QUESTION:
    What is the best institution to use if you want to create a rollover IRA?
    I’m in my 20′s and was working for a company and had a 401k. When I left to become an intern I lost all of my benefits of the 401k. Now I would like to rollover the money I have earned from the 401k into an IRA. Which institution is best?

    • ANSWER:
      they are all regulated by the same government agencies…

      You should roll it into a discount brokerage such as Schwab, or any other similar group, because the fees are so low…..

  21. QUESTION:
    What taxes will I pay on a rollover IRA and 401K if I cash out?
    My husband had 00 in a 401k (most was contributed this year) he lost his job and it was rolled over into an IRA. We did not do the rollover within 60 days. He is disabled and will not be going back to work.

    Here are my questions – 1. Will we have to pay taxes on the 401K since it was not rolled over within 60 days. 2. If we cash out the IRA now, would we have to pay taxes on both the 401k and the IRA?

    • ANSWER:
      Yes and if he is under the age of 59 1/2 the 10% early distribution penalty will also able plus the federal income tax at your marginal tax rate.
      Sound like the money that is the 401K is the same funds that was deposited into the IRA this year and the amounts are being withdrawn in the same year so NO that amount would not be taxable again because the IRA was not an IRA account for the year 2010.
      Hope that you find the above enclosed information useful and good luck.

  22. QUESTION:
    What happens with a rollover IRA when someone dies? Is it part of the estate?
    ,000,000 rollover IRA and the owner dies. The beficiraries are 1/3 to the wife, 1/6 to the son, 1/6th to the daughter, and 1/6th to the local public university. How much of this IRA is included in the estate? All of it?

    • ANSWER:
      Let’s make this REAL SIMPLE.

      Everything the decedent owned just before they died is INCLUDED in the estate. This includes taxable gifts during their lifetime, insurance, house, IRAs, etc.

  23. QUESTION:
    Can I contribute additional money to a rollover IRA?
    I rolled over funds in an old 401k with a previous employer into a Rollover IRA. I want to contribute more money to that IRA that is not part of any qualified plan. Can I do this or do I have to open a separate IRA to contribute my own money.

    • ANSWER:
      You can, but I wouldn’t recommend it. What you are talking about is called comingling. This can cause several problems:

      1 – once you add new money you can never roll that money back into a 401k
      2 – unless you are able to use the contribution as a deduction, you are adding after-tax money to pre-tax money which causes an accounting nightmare.

      A better solution is to open a Roth and fully fund that instead. However, if you don’t qualify for a Roth, you can contribute to a rollover *if* the following are both true:

      1 – you will never want to roll it into another 401k
      2 – you can use the full contribution amount as a deduction (be careful of the limits, they are pretty low).

      So, it depends on your situation. But, a Roth is a better bet.

      Make sure that, if you are investing in funds, wherever you have your investment offers a good selection of low-fee, no-load funds and is not a bank or anything similar. When buying fudns you should always go to the source and skip the middle-man fees.

      Good luck!

  24. QUESTION:
    Can a pretax 401k to IRA rollover be used for housing loan?
    I live in Missouri. I rolled over my pretax 401k in to an IRA and have made no further contributions. Can I take a loan against this IRA for primary housing penalty free? Thanks.

    • ANSWER:
      No.
      You can not make a loan or take out the money out of an IRA.
      There is a little known rule.
      You can take out the money – but only if you make sure you replace it in full within a 60 day period.
      *** Not sure why this rule was ever allowed *****
      /

  25. QUESTION:
    What happened if I put money into my Rollover IRA?
    I move my 401K from my old employer to a Rollover IRA account in Dec 2006. What will happen if I want to put money into that Rollover IRA? Will I get any tax penalty? Will it become Traditional IRA or Roth IRA?

    • ANSWER:
      MHD,

      You can roll your 401(k) funds over to an IRA or Roth IRA with the same investment company tax and penalty free. You can also roll it over to an IRA or Roth IRA with an existing IRA tax and penalty free.

      The only time you pay is when you take a cash disbursement or move it to a non-retirement account.

  26. QUESTION:
    which gov’t unit has oversight auth over 401k rollovers to an IRA, as far as the way it was handled?

    • ANSWER:
      depends on what you mean…”how it was handled”. Do you think your rollover wasn’t processed in a timely manner and you lost money? That would be the department of labor. Did your receiving institution not accept the rollover because it was outside of the 60 day window? That would be the IRS. It would never be the PBGC as the first poster suggests as that’s for pensions and not 401ks…in addition the PBGC is simply a clearinghouse for failed companies pension plans it has no oversight on plans that are still operating.

      You’ll need to provide more insight as to what you think went wrong before I can help you.

  27. QUESTION:
    IRA Rollover to avoid taxation and penalty. Does the rollover have to equal the distrubution amount?
    I received a check from a defined benefit plan upon switching jobs. I want to reinvest it before the 60 days to get rollover credit, but I don’t want to deposit the entire amount. Can I get tax credit for a partial reinvestment or does it have to be the entire thing in order to count?
    I received a 1099 R and the taxable portion was very low.

    • ANSWER:
      If you don’t roll-over the entire amount, you will have to pay interest and penalties on the amount that you don’t roll-over.

  28. QUESTION:
    What do you think about moving out “cash balance” money from company Pension account to an IRA rollover?
    I’m 51 years old, recently retired and has 9K in cash balance account that our pension plan credits with 5% interest credit/year.
    I’m assuming on an average year, the stock/mutual funds/ETFs will probably generate between 5% and 10%/year. This 9K present value will give me about ,358/month for life at age 65.
    Will it better to do an IRA rollover for a much higher earnings than the 5% from the pension plan or will it be better to receive ,358/month for life starting 14 years from now? Any comment
    will be appreciated.

    • ANSWER:
      Hi Arnel,

      *IF* you can make an average of 8% a year on your investment of 9K, than by age 65 you’d have a balance of 7,000

      58 per month x 12 months = ,296 per year

      7,000 / ,296 = 16 years

      So basically what I am saying is the 7,000 would last 16 years (or take you to age 81), however the benefit is…. in year 1 (age 65) you’d take out ,296 and you’d still have 0,000 invested and able to grow and compound… so this money would last you more than 16 years because you would only be taking a small amount out each year and the rest could continue to appreciate.

      Obviously the wildcard is your rate of return, and you are trading a sure thing for a not sure thing. The market historically returns 9-11% but there are some years where the return is -10%, and some where its 25%. If you go the IRA route, for the next 10 years I’d invest it maybe 70% stocks, 30% bonds, and then as you get older get more conservative and move more to bonds or even CDs if you can get a guaranteed 6%. If you can gain returns greater than 8% obviously you can do much better than my scenario, or if you do worse the 8% than you would not do as good as my scenario so obviously rate of return is important.

      If you decide to cash out and need help knowing where to put the money feel free to contact me and I can give you some pointers.
      markox5@yahoo.com
      Mark

  29. QUESTION:
    Rollover a 401K and IRA into one account?
    My Mom has a 401K account from an employer where she recently left. She also has a regular IRA at a mutual fund company. We’d like to combine those into one account, can it be done and then later setup for retirement withdrawals?

    I’ve seen Rollover IRA’s but they appear to be used for holding when moving from one employer to another.

    • ANSWER:
      You can roll-over a 401k permanently into an IRA, but I would check to see if you mother is eligible to roll it all over into a Roth iRA, which has more tax advantages than a traditional IRA. Either way, there is no 20% penalty if she rolls it directly into a Roth, or Traditional IRA or to her new employer’s plan.

      Also, if she chooses to rollover into a Roth IRA first, she will only be able to roll that “roll-over IRA” into another employer’s plan. She cannot roll over a co-mingled IRA with pre and post tax dollars into an emplyer plan. She can always leave it in the IRA permanently though.

      Since your mom left her old employer already, it won’t matter, but the only downside to rolling over a 401k into an IRA is that if you leave an employer after age 55, your early withdrawls from a 401k are not subject to the 10% penalty tax. If you roll it over into an IRA, any withdrawls before age 59 1/2 are subject to the 10% penalty tax.

  30. QUESTION:
    Can a Roth IRA be opened fm rollovers of a IRA and 401k? Can I then invest the money in real estate?

    • ANSWER:
      You can rollover a 401k into a traditional ira once you have left a firm (some firms allow you to do this before you leave, but there’s probably no reason to). That traditional ira can then be converted into a ROTH ira. This means that you are going to pay taxes on all the money in the traditional IRA. This generally deters people from converting large traditional IRAs into ROTHs, since the taxes can be prohibitive.

      Second question: Yes, you can invest in real estate within an ira. There are a select few firms that do this, you would have to search for them online. Remember a few things when doing this: You will have to have all the money to purchase a property outright in the IRA, since per IRS regulations you are not allowed to have a loan in an IRA. You CAN set up a partnership, with your IRA being one equal partner and yourself and equal partner. Then you can have a loan for yourself, but still not in the ira. Remember, we’re talking about quite a bit of money. Don’t try this unless you have a minimum of 0,000 in your IRA. Also remember that diversification is key. You want to have three or four properties, as well as stocks, bonds, mutual funds, etfs, etc. in the account.

  31. QUESTION:
    ROTH IRA QUESTIONS – Rollovers/conversions/recharacterizations…?
    FACTS:
    1) I had a SIMPLE IRA from 2004-2008 at a former job. Last contribution was in 2004.
    2) Towards the end of 2008, I “moved” (rolled over? converted?) all the funds in my SIMPLE IRA to a ROTH IRA with Nationwide (yeah, they don’t just do car insurance!)
    3) I paid taxes on the amount that was “moved” but no penalties (since I didn’t take the money out of course, but just went from one account to another)
    4) Surprisingly, I have not yet contributed to my new ROTH IRA yet
    5) I am now finding that I don’t like the company and options available in my current ROTH and want to “move” funds again….but not back to a SIMPLE or Traditional IRA, just to a different company but still as a ROTH.

    QUESTIONS:
    1) When I “moved” from SIMPLE to ROTH, that was a conversion, right? If so, then what is a rollover?
    2) I never even heard of a SIMPLE IRA until recently! (thought I had had a Traditional IRA the whole time at my last job). Other than the rule that you can’t move funds less than 2 years after your last contribution, is there really any other significant differences between a SIMPLE IRA and a Traditional IRA. If not, then when I am reading about the characteristics and pros/cons of a Traditional IRA (which there is more info online for Traditional IRAs than SIMPLEs) I can pretty much use that same info for a SIMPLE?
    3) Can you have more than one ROTH at a time, so long as you don’t go over the contribution limit of 00 for the year? If so, then instead of moving my funds again, maybe I will just open a second ROTH?
    4) Regardless of whether I could have two ROTHs at the same time, or if I closed my current one and opened up a new one, in either scenario, I would want to “move” my funds from the old one to the new one. If I were to “move” funds from my ROTH with company A to my new ROTH with company B, would that be a rollover or a conversion? I’m thinking it definitely would not be a “recharacterization”, because my understanding is that it would only be called that if you were to transfer funds back to a different TYPE of IRA (like back to a SIMPLE or Traditional from my ROTH, which I wouldn’t be doing) or that you are trying to say a certain conversion should be treated differently
    5) As stated in the facts above, there are currently NO contributions in my current ROTH, only the amount of the previously “moved” funds. And based on how the market went down over the last several months, there are no positive earnings (my balance is definitely lower than when I moved the funds). So if I moved funds to new ROTH, I am thinking there would be no taxes (since I was taxed when they were first moved in and the only other thing you get taxed on are earnings but I’ve had no earnings). And also no penalties (because I am not really withdrawing funds but simply moving them again to another account)?
    6) If it is true that I can in fact move my funds to a new ROTH, since both of these ROTH transactions will have happened in the same tax year (2008), can I assume that for purposes of the “5-year rule” (in determining if future withdrawals of earnings will be taxed/penalized), that my 5 years will still start from the same time (January 1, 2008)?

    I know I’ve asked A LOT here, but a nice big whopping 10 points to whoever can try to address as many as you can. And I have numbered things so we can all keep it straight!
    My current company holding my ROTH said that I bought “B shares” for my mutual funds, which are the kind that charge certain back end fees if you sell earlier than 5 years, it goes down like every year or something. So it looks like I wont have any tax or penalty issues, but broker fees is the 3rd thing to factor in and looks like I would have to pay that so maybe I should just keep things how they are?

    • ANSWER:
      1) The easiest way to distinguish btw rollover and conversion is that rollover refers to an account transfer where the account type is the same (roth to roth, or 401k to regular ira) and so there’s no tax implication. The conversion, as you said, involved a tax payment because you changed from a pretax account (401k) to a post-tax retirement account (Roth).

      2) For your purposes, it’s fair to say that your SIMPLE account is the same as a Traditional IRA account. The major differences are related to the decision factors of your employer to set up the account and determine how much can be invested, etc. But since you already have this account set up and funded, from your perspective, not much difference to you.

      3) Yes, you can have more than one Roth Account at one time. You can have as many as you want, as long as you don’t fund greater than ,000 into your various Roth accounts for any given TAX year.

      4) Roth to Roth is rollover. Trad IRA to Trad IRA is a rollover. Roth to Trad IRA or vice versa is a conversion. A recharacterization is where you go back to an investment you did in your current tax year, and change the type of retirement account so your understanding is correct.

      5) Right you are. Roth to roth rollover means no tax consequences or penalties.

      6) The 5 year rule applies to time from when you made the original contribution or conversion. Let’s say you contributed the money to either type of ira in 2005. Regardless of how many rollovers you did with this money, you can still take out the money after 5 years (and also as long as you are over 59.5 years) without penalty.

      If you did a conversion, the same 5 year rule applies. If you did the conversion from Trad IRA to a Roth IRA in 2008, you have to way 5 years from the 2008 date. In that time, you can roll over the Roth IRA to different types of Roth IRA accounts, but it’s the date of the original conversion to this type of account that matters.

  32. QUESTION:
    What’s the tax treatment for after-tax contribution and earnings in a 401K plan re-directed to an IRA rollover
    Can the after-tax earnings rolled over to an IRA with tax-deferral or transferred to a regular brokerage account? If to a brokerage account what’s the tax treatment, ordinary tax or capital gains? Any other thoughts?

    • ANSWER:
      I wish I could answer this, as I have been wondering myself! I max out my pre-tax dollars in my 401k plan, and still have money left over at the end of the month. So, I started making after-tax contributions to the plan as well.

      From what I understand, these dollars are very similar to an annuity (taxes already paid on principle, but gains are not taxed until withdrawn), so there may be a possibility of rolling the after-tax dollars into an annuity without penalty or taxes. Since I’m not ready to roll over just yet, I’ve been letting it sit as it is and have not taken any action. Your investment company or financial advisor should be able to answer.

      Glad you asked the question and hope for a more direct answer than mine.

  33. QUESTION:
    Am I allowed to rollover an IRA into a different company IRA?
    I am going to change my dad’s account with a small town bank and Kemper to a different mutual fund company (like Vanguard). Can I rollover an IRA to a rollover IRA, or is that only with 401ks?
    Thanks!

    • ANSWER:
      Yes, you can. Contact Vanguard (or who ever you want to go with). They will ask you to complete “transfer” forms and then they will take care of the rest. It is relatively straight forward and a common process. You don’t even have to contact your current account holder. Make sure that during the process you don’t get a check in your name … otherwise, you may owe taxes.

      Check this out. https://flagship5.vanguard.com/VGApp/hnw/content/AccountServ/Retirement/ATSTransIRAtoVGIContent.jsp

  34. QUESTION:
    How to do federal income tax when I transfered money from my 401K to a Rollover IRA account? Please help. Thx!
    In 2006, I transfered money from my employer sponsor 401K directly into my Rollover IRA account. They sent me a 1099-R form for the distribution although this money is tax exemption. How am I going to report this 1099-R in my income tax? Thanks for your help! Le Nghp

    • ANSWER:
      Report on line 16 A the amount of the Rollover and on 16B put -0-
      to the left of 16B write Rollover

      1040A
      Line 12A the rollover amount 12B -0- and write Rollover to the left

  35. QUESTION:
    Is it advisable to do an IRA rollover for after-tax income earned from after-tax contribution in a 401K acct?
    Or is it better just to transfer both after-tax contribution and after-tax income to an individual brokerage account? Is it correct that capital gains tax will need to be paid for the after-tax income earned from after-tax contribution? Any advise will be appreciated.

    • ANSWER:
      If you have money in a 401k you can transfer it to a conversion roth/ira. When doing so, you will have to pay the federal and state taxes due on the monies. Once done, the balance will grow tax free. It is hard for someone to give you advice on this as we do not have the rest of your financial info. Contributions to a 401k decrease your taxable income. If you use a Roth IRA (post tax) your money grows tax free but is not tax deductable. If you use a regular IRA it may be possible to use it as a tax deduction.

  36. QUESTION:
    Mutual fund IRA rollover vs. Roth IRA : which is the better move?
    Last year, I rolled all of my investments from the 401K plans of previous employers into a mutual fund IRA rollover account. I have recently been considering putting that money into a Roth IRA. I would not be contributing regularly to the Roth IRA, were I to do it.

    What are the advantages and/or disadvantages of doing this? Is my money as likely to grow as it would in a mutual fund investment? What are the tax issues involved with such a move?

    • ANSWER:
      You are not able to do this type of rollover because when you contribute to a 401k or a traditional IRA these funds are contributed on a pre tax basis where as a ROTH IRA funds are contributed by money that has already been taxed (like the money you take home from your paycheck)
      The tax differences are when you take money out of a 401k since that money was contributed pre tax (the contributions came out of your paycheck before the taxes are taken out) you have to pay taxes when you are ready to “cash out” your 401k but here’s the kicker. You pay about 20% federal taxes on the amount taken out (depending on your tax bracket or what the taxes will be at the time you take the money out) plus, if you take your money out before you are 55 and retired or 59 and still working then you taxed an additional 10% early withdrawl penalty…..so a lot of your money is gone to taxes.
      ROTH accounts are contributed by money that is already taxed so that when it is removed you may only be subject to the early withdrawl tax but no state or federal tax.
      But back to the original questions, since one is a pre tax contribution and the other is post tax you are unable to combine them in one account. Even if you suggest making up the taxes or whatever it just doesn’t happen, anywhere.
      You can contribute more money per year into a 401k plus you may also receive employer match.
      You can diversify and have both an IRA and ROTH IRA…speaking w/ a financial advisor is your best bet :-)

  37. QUESTION:
    Can I roll over the monthly distribution from an employer-sponsored defined pension plan into an Rollover IRA?
    I am about to turn 65 and receive a monthly check from my employer’s defined pension plan. Can I have the monthly distribution direct deposited into an Rollover IRA?

    • ANSWER:
      No.

  38. QUESTION:
    Can you do an IRA rollover for a 401K, 403B or TSA if the company change plan administrator?
    Company change plan administrator to a new one.
    Company not putting any more contribution to the former plan administrator but now has a new plan administrator that currently receives contribution. Employee still working for the same company.

    • ANSWER:
      Only if you are fully vested, and not still employed.

      Your employer will remove the monies from the old, and deposit with the new… see your HR person to find out when and how…

  39. QUESTION:
    Transferring a Rollover IRA from one bank to another?
    What is the process for transferring a Rollover IRA account from one financial institution (i.e. Bank A) to another financial institution (i.e. Bank B). Bank A is only used to hold the Rollover IRA account and nothing else. I would like to move the Rollover IRA to Bank B to be with my other investments so all investments can be in the same locations. Also, a small portion (like 5% of the total amount) of the Rollover IRA is currently invested in stocks through Bank A’s trading account.

    • ANSWER:
      You will simply have to sell your investments to transfer the account.
      Stocks can not be transferred.
      See if you can get bank A to send the check directly to bank B
      In other words – open the account in bank B first – get an account number, then request bank A to deposit the amount into bank A.
      Bank B will help you with all these steps.
      /

  40. QUESTION:
    How can I roll over a 401K to IRA if I’ve moved to France and no longer have US residency?
    We moved in August, so have spent most of the year in the US and will be paying taxes there this year. It’s my husbands 401K and he’s a Danish citizen (I’m american) but also US green card holder. All IRA rollover applications say non-residents need not apply. They are closing his company in the states and we have to do something this month!

    • ANSWER:
      If you are already a resident of France, you can’t. You have to take a withdrawal first so it can be taxed (possibly 30%). You know the IRS wants their money.

  41. QUESTION:
    Does the “Basis” of a 401K (rollover to IRA) include the money you put into it, even if it is pretax?
    I rolled over an 401K several years ago, and need to calculate the “basis” of the rollover IRA where that moeny now resides. Is part of the “basis” the money taken out of my paycheck – pretax, which now resides in that IRA? I’m assuming it does, but not sure because it was removed from my paycheck – pretax, whereas other “contributions” to the same IRA over the past two years were made after tax.

    • ANSWER:
      everything done pretax was done by someone other than you so they must keep records.so ask them.

  42. QUESTION:
    Can you make a partial rollover of a Traditional IRA to a Roth IRA? Has anyone done this?
    If you made non-deductible contributions to a Traditional IRA before the Roth existed, then it might make sense to convert that amount (where taxes have already been paid) to a Roth….so the earnings can grow tax-free rather than tax deferred. But do they allow partial rollovers? Or do you have to rollover the entire Traditional IRA, incurring taxes?

    • ANSWER:
      Partial rollovers are allowed. You are not required to rollover the entire traditional IRA. However…

      You cannot segregate the non-deductible IRA contributions and then rollover only those amounts to a Roth IRA.

      Example: You have ,000 in all of your traditional IRAs (not just the one with nondeductible contributions) and 00 is from nondeductible contributions. If you rollover ,000 of this money into a Roth IRA, the rollover will be considered 30% from the non-deductible contributions. You will rollover 0 with no tax, and pay income tax on ,100.

      This is figured on Form 8606.

  43. QUESTION:
    Can I rollover a “Rollover IRA” into a SEP-IRA?
    I want to consolidate my investment accounts into one for easier tracking, by moving all my Rollover IRA accounts into my SEP-IRA. Can this be done, and what are the disadvantages?

    I’m going to see an accountant next week, but I want an answer ahead of time so I can keep our meeting short :)

    • ANSWER:
      You can move all your IRA assets into one account. There are no disadvantages, assuming you are keeping your assets and not withdrawing them early.

      The new account will not be a SEP IRA account, it will be a generic IRA account. Your custodian will probably create a separate bucket for the new money, which is a good idea from an accounting standpoint.

  44. QUESTION:
    Is there any risk holding a rollover IRA with a “Securites” company ?
    I have a rollover IRA being held by “Wachovia Securities” – I guess this is different than “Wachovia Bank” ?

    Any way, is there any risk, or are they just the custodian – it also says “FCC as custodian” – don’t know what that means . . .

    • ANSWER:

  45. QUESTION:
    is it better to open a rollover IRA in a Bank or some inverstment firms?
    i have a lumpsum pension coming up in a couple days, but i dont have time to decide what to do about it. I guess putting it into any IRA will defer taxes for now, and i can decide what and where later. any advice? i am over 60 now. can i withdraw any amount anytime from the ira? Is tax still 25% on the withdrawals?

    • ANSWER:
      I think you are generally going to have a lot better options at the investment firms.

      If you want to buy CD’s within your IRA, most investment firms have access to a huge variety of FDIC insured CD’s from all kinds of banks. This usually allows you to find a better rate, faster, than just driving around town to the local banks.

      If you decide to opt for higher earning (and more aggressive investments), you are going to have a lot larger menu available to you at the investment houses as well.

      Since you are over 60, you can withdraw money without the 10% penalty being applied for early withdrawals (59 1/2) is the general cut-off for that.

      Whatever you do though, do not have the rollover made out to you… make sure you do a “trustee-to-trustee” transfer.

      When you do withdrawals, you can opt to have Federal and State tax withheld at a rate of 20%, but you do not have to.

      That DOES NOT mean that your IRA withdrawals are taxed at 20%. That is just a standard guess-timate to get you in the ball park of what you might owe.

      When you actually file your taxes, you could get some of that back, or end up owing more, depending on what your total income (and your actual tax bracket) might be.

      You generally HAVE TO start taking withdrawals on the IRA by April 1st of the year after you turn 70 1/2, unless it is a Roth IRA.

      I would definitely talk to your tax preparer for a more detailed explanation about your unique situation!

      Hope that helps!

      Ken Clark
      Certified Financial Planner

      Disclaimer:
      Answers provided are for general educational purposes only, and may exclude other important factors relevant to your unique situation. No reader should act on the information contained in this article without consulting a financial professional directly.

  46. QUESTION:
    Will I have to pay CG taxes if I rollover an IRA and self direct it?
    Will rollover an IRA account soon to another brokerage house. currently I pay only income taxes on the amount I withdraw each month, and no capital gain taxes. Will I have to pay these when I begin to self-direct the account? Also, Is an LLC the best way to set up the business?

    • ANSWER:
      You will not have to pay capital gains taxes on it. If (1) it is a qualified rollover and (2) it remains an IRA, then you pay tax only on the distributions. [However, if the rollover is disallowed (for example, you have the money paid to pay and miss the time window for a rollover), then it is taxable as ordinary income and ceases to be an IRA, at which point regular tax rules (including capital gains) apply going forward.]

  47. QUESTION:
    Researching 401K rollover to IRA — IRA info mentions maximum annual contributions. Do I have to contribute?
    My 401K is substantial, was employed for 12 years. Do I have to make annual contributions to a new IRA, once my rollover is established? Can’t the IRA act like a savings account? Is there a minimum contribution amount? I know the max is based on adjusted gross income.

    • ANSWER:
      You don’t have to make any contributions to an IRA. You can make contributions each year as long as you have earned income. If you are going to rollover your 401k to an IRA you should be all set as long as you don’t work at the company anymore.

      Good luck and happy investing.

  48. QUESTION:
    I am looking @ withdrawing from my IRA rollover from a previous 401k? Can I take a partial withdrawal or all?
    Am in a situation where for piece of mind I would like to pay off some debts. I realize the taxing and what not and I am not yet eligible to start a 401k @ my new employer, however, I know i am still young, and can learn from this

    • ANSWER:
      You can make a partial withdrawal from an IRA. Just be prepared for the 10% penalties + taxes on the withdrawn amount.

  49. QUESTION:
    Can I roll my Canadian RRSP plan into my US Roth plan & receive benefit of new tax law allowing IRA rollover?
    I am Canadian Citizen & US resident alien living in US and want to take advantage of new 2010 tax law that allows traditional IRA rollover into a Roth, BUT want to use my RRSP Canadian retirement funds to roll into Roth. Can this be done and, if so, how?

    • ANSWER:
      There is no provision in US law to rollover foreign retirement accounts. You can keep the RRSP, or cash it out.

  50. QUESTION:
    Does my 403b rollover into an IRA count toward my IRA contributions for the year?
    I rolled a 6-year-old, dormant 403b into an IRA recently, and now I want to do a maximum contribution to a Roth IRA. Did the rollover amount count toward my contributions for the year?

    • ANSWER:
      No, not at all — not for your Roth and not for your 403b contributions for the current year. It’s no different than if you sold one fund and both another inside your 403b.

      Doug