Rollover 401k To Ira

Frequently Asked Questions

1. 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.

2. QUESTION:
   how to include rollover 401K IRA contributions in tax filing?
   Last year I moved my old company 401K funds into a Rollover IRA account with a financial institution. In year 2009, I made some money contributions to this Rollover IRA account and this year I received a Form 5498 with information about IRA contributions and the account value. I am using a tax software and I dont know how to enter this IRA contribution amount into tax software as deduction for tax filing. I didn’t receive 1099- R form because I didnt distribute my funds. I appreciate if you could confirm if I can claim my contributions as deductions in tax filing.
   Thank you for your quick response. However, I called my financial institution today and they told me that I don’t receive Form 1099-R for not having done any distributions (basically not removing any money from my rollover IRA account). I dont know what to do at this moment.

   • ANSWER:
     You should of gotten a 1099 R for the rollover becuase techinally you did distribute it however the code listed in box 7 is G. That tells the IRS that it was put into a rollover plan and there are no taxes assessed on the dirtribution. Since you are using a software program you need to check with them about the second part to your question.

3. 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.

4. 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.

5. 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.

6. 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 *****
     /

7. QUESTION:
   Roth IRA – 401k Rollover Contribution Limits – will choose best answer?
   I have a total of three retirement accounts, and I need to make sense of how the maximum contribution limits apply to them.

   1) I have a Roth IRA, to which I make the maximum contribution each year. This year I have already deposited the maximum of 00.

   2) Totally separate from that account, I have a small 401k account with a former employer. I have left the employer, and they are forcing me to exit their plan. The balance on this account is only around 0.

   3) I just (today) opened a Bank of America Rollover IRA account. I opened this account for the purpose of receiving the funds from account #2, which I am being forced to exit.

   So the question is: if I rollover the 0 from my old 401K to the new Rollover IRA account, does this affect the contribution limits for my primary IRA account, the Roth? The Roth is my primary vehicle for retirement savings, and I don’t want to do anythat that reduces my ability to max it out. (And this year, it’s already maxed out).

   Thanks in advance. I will give 10 points for best answer.

   • ANSWER:
     As mentioned a rollover is not a contribution.

     It is usually best to do a direct trustee to trustee transfer to avoid any withholding or tax liability.

     But depending upon your ex-401k plan, they might give or send you a check (ours does if total is less than 00) in which case they would withhold 20% of the distribution (approx 0) towards taxes. But if you add that missing 20% back in from other sources when rolling it over within 60 days, there will no tax liability and you would get credit for the 20% withholding at tax time. If you do not add the missing withholding back in during rollover, that ~0 would be taxed and subject to 10% penalty (about another ).

8. 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.

9. 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.

10. QUESTION:
    is it possible to move rollover IRA to 401K?
    Rollover IRA is fully funded through previous 401K. Do we have to consider rollover IRA while converting other IRAs to Roth in 2010? If yes, is it possible to move rollover IRA to 401K to avoid it part of the conversion to Roth IRA in 2010?

    • ANSWER:

11. 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.

12. 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.

13. QUESTION:
    I want to open a SEP IRA, rollover my 401k, and do stock trading…all with one company. Who’s the best?
    I use Fidelity for my 401K, Ameritrade for my stocks, Wells Fargo for my checking accounts, INGDirect for my savings account, Chase for my credit cards and HELOC, and WaMu for my mortgage. I’m looking to consolidate a bit, so I don’t have to deal with so many different log-ins and interfaces. I also need to open a SEP IRA before the tax deadline. If I want to at least consolidate my 401K, SEP IRA, and Stock Trading with one company, what company should I go with? Schwab? Ameritrade? Fidelity? WellsFargo? ETrade? A different company? My must-haves are:
    1. No/Low Fees
    2. Good Customer Service
    3. Intuitive Online Interface
    4. Fast and easy set up (e.g. account set up, rollover, initial deposit, etc.)

    Thanks for your help!!!

    • ANSWER:
      Vanguard will give you the lowest fees.

      Schwab will probably give you the best service.

14. QUESTION:
    IRA vs. IRA CD? How to Rollover IRA and 401K money…?
    I have an IRA that was rolled over from a 401K a few years ago. I also have money vested in my last company’s 401K plan in which I was vested 50/50 in a traditional and roth.

    I am trying to roll over all of IRA/ 401K money into one IRA, but don’t know which way to go. What’s the difference between an IRA and IRA CD? Is it better to go traditional IRA or roth? Also, I was told some banks may not take my roth money, and idea why this would be?

    (I’m late 20′s with less than 5K to invest)

    • ANSWER:
      Your old rollover IRA can be transferred to a new IRA custodian as you wish and invested in whatever you wish – that is referred to simply as a transfer between custodians.
      There is no such thing as an “IRA CD” – you must mean an IRA that is invested in CDs.

      You can also roll your old 401(k) account into an IRA as you did previously. You CANNOT mix conventional IRA and Roth IRA funds without tax consequences, because 401(k)s and conventional IRAs are pretax dollars while Roth IRAs are after-tax dollars.

15. QUESTION:
    If rollover a 401k to a rollover IRA, when can I withdrawal from it after the rollover?
    like if you have emergency and may need a large sum of money, can it be done?

    • ANSWER:
      Yes, but you’ll pay a penalty if you are under age 59-1/2.

16. 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

17. QUESTION:
    401k to IRA rollover?
    I have 401k and my old company sent check to me so I cash the check and open IRA account and sent check to them.
    Here is my question, in order to get Tax credit I need to open IRA account and put money within 60days. I put the money but I didn’t buy funds, it’s in Cash (Money Market). Is it okay I didn’t buy funds within 60days order to receive Tax credit?

    Thank you
    Yes, the money is in cash(money market) and in the IRA account.
    Thank you very much for the answer.

    • ANSWER:

18. QUESTION:
    401K rollover to Traditional IRA or Roth IRA? Which is better?
    I have 10K in my 401K. I tend to roll it over to Roth, taxed once and never again, since only 4000 per year contribution is allowed, I can only rollover 10K this year 4000 and then next year 5000 and the rest, bit by bit? is that right? And I have to rolloever to a rollover IRA first right? Sincce I can only contribute 4000 or 5000 per year, the growth is not as large as if I have a larger lump sum compare to traditional. Unless I know by the time I retire, I am in a lower tax bracket… then traditional is good? I am confused, or maybe either turns out to be the same? I know traditional is tax deductable, Roth you can take the contributions out penalty free after 5 years. I read motley fool example and they said Roth is a bit better, but now I’m not sure. let’s just say, I can pay the tax now if I move it to Roth, but still, I can’t roll it all at once, correct?

    • ANSWER:
      you do not have to rollover to a traditional from a 401k… your can lump-sum it ALL out.

      Check with your brokerage, but I do believe the initial funding is not limited to 4k$ a year.

      Remember that you are paying 00 in penalties for early disbursal.. and whatever your income tax rate is on K. If you do it all at one time, you are paying a high hit on the penalty and potentially a high hit on the taxes.

      Were I you… I’d follow the path you are suggesting. Take it out in small bites and eat the penalties / pay the taxes that way.

      If you are young, and absent a matching 401k, the Roth IS your wisest move….If you have a MATCHING 401k you should fund it first and keep the money where it is… as the “match” is an INSTANT ROI that cost you NOTHING…

19. QUESTION:
    Rollover IRA to 401K and Roth Conversion?
    IRA to 401k Rollover and Roth IRA Conversion in same year?

    My wife had her 401k rolled over to traditional IRA#1 in 2008
    when she had quit working. Now after resuming work, she wants to rollver back to new 401k,
    as the IRA#1 exists in same org which held old 401k and is charging annual fees!!

    Meanwhile, this year we opened new traditional IRA#2 in another place and made
    non-deductible contributions to 2010 and 2011. We initiated
    a Roth IRA conversion on Sat and its pending currently at Vanguard.
    Since all our contributions were non-deductible and I assumed we had
    no other balance anywhere in other IRAs, (totally forgetting about
    IRA#1) I thought there were no taxes to be paid.

    We then realized that because of IRA#1, and pro-rated tax some % of
    our conversions will be taxed un-necessarily. Since her total IRA will
    now also include tax deductible portion though not a big % of total IRA.

    We would ideally like to put back IRA#1 to new 401k and isolate the
    tax deductable IRA part and then go for conversion. But problem is
    we already initiated the conversion.

    We are thinking of some options:

    1) Try to stop the conversion? Is this possible?

    2) If not, Let the Roth conversion complete for IRA#2, and immediately initiate 401K rollover
    from IRA#1.

    Does this still mean we owe taxes on conversion? When is total IRA balance to be
    calculated? During time of conversion or end of year?

    3) OR Recharacterize and undo the Roth conversion, then initiate IRA#1 to 401k Rollover.
    I read that only one rollover per year is allowed per account. So is this possible?

    Does this help in avoiding tax at end of year? Can I again do another conversion from IRA#2 to
    Roth later?

    4) OR recharacterize and undo the Roth conversion, then transfer from IRA#1 to IRA#2 and
    again trigger Roth Conversion. I am ok on paying taxes in this case as long as I can
    get rid of IRA#1.

    If we recharacterize does this mean we already used on rollover allowed per year by IRS?

    Any other options? Please help.
    We have confirmed that the IRA#1 can be moved to new 401k via direct rollover.

    • ANSWER:
      It doesn’t matter what you’ve confirmed. As Woof stated, rolling anything into a 401(k) is almost always a bad idea. You lose options, control, and investment options. Consult a properly qualified financial planner or advisor who can help you wisely consider all available options. Most will do this at no cost.

20. QUESTION:
    Can I rollover my 401k to an IRA if I have a second full time job with better medical benefits but no 401k?
    1st job benefits and working conditions are decreasing.
    2nd full time job has great medical insurance and no 401k plan. I’m not sure how long I’ll be at my 1st job but I know I will stay with my second. I want to make my transition easy.
    Switch medical asap and roll over my 401k to IRA so I have no benefit ties to my 1st job.

    • ANSWER:
      wow what a situation.

      You cannot roll the 401k to an IRA until after you leave the first job. (there is a requirement for seperation from service on all 401K plans)

      switching the medical should be pretty easy and when you do finally leave the first job simply ask for a copy of their roll over paperwork from HR for your 401k.
      Once you leave you fill out the form and determine where you want the IRA to be held, complete the roll over and you’re done!

21. QUESTION:
    How can I borrow 100% 401K or IRA rollover tax & penalty free?
    I am losing my job. This is second time in 21 yrs, my job has been downsized. I want to purchase an existing business , so I do not have to go thru this again. I need cash. I need to use or borrow 100 % of my 401k.

    Can I put my 401K into a rollover IRA & use 100% tax & penalty free?
    I have been told I could put all of 401K into a IRA rollover , create a C Corp & then use IRA cash. BUt the finance guy want 00 fee.
    Does this sound accurate?
    Can I use the cash without paying the guy 00?

    Please help!

    • ANSWER:
      You can generally borrow up to 50% from a 401k if you still work for the company. As it is paid back through payroll, you must pay it back within 60 days if you leave the job. If you do not, the loan is considered a distribution subject to taxes and penalties.

      You can not “borrow” from an IRA. Doing so is considered a prohibited transaction. Doing so would make the loan amount subject to taxes and penalties.

      What your “finance guy” is proposing is called a self-directed IRA. Yes, these are complex and very expensive. Hence, the 00 fee.

22. 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

23. QUESTION:
    allowing rollover of 401k to IRA after the merger?
    Is it common practice for companies after merging to allow their employees to rollover their 401k to IRA so they don’t have to move their assets to the new plan. If yes I would appreciate few examples preferably from telecom industry.
    Thanks
    My company just merged with other company and they want to take all of our 401ks and transfer them to new plan with a new company in one day.
    I would rather that they let me rollover current 401k to IRA with fidelity who is currently holding our 401k, vs transfering it in one day (market being good or bad) to the new plan.

    • ANSWER:
      depends on how the merger transaction is actually structured. Very few mergers are indeed mergers…they are more often purchases that are called mergers so as to not hurt feelings.

      If it’s an asset purchase then you stay in the plan and a rollover is not an option.

      If it’s a stock purchase then you will be given the option of a rollover.

      If they aren’t giving you the option then it’s the former. To do otherwise would be illegal. And, by the way it obviously tells you how the merger transaction was structured.

24. QUESTION:
    401K rollover – what IRA administor to choose?
    I have changed job a few times over the past 10 years and have 3 401K accounts still w/ the former employers.

    I’ve heard it’s better to consolidate the different 401K accounts. Need your expert opinion on which ones to choose –

    Fidelity no fee IRA – stable/large w/ good fund choices

    TD Ameritrade – option of investing in individual stocks

    Anything else?

    Thanks for your help!

    • ANSWER:
      an IRA is pretty much nothing more than a regular mutual fund that you designate as an “IRA” when you open the account. With that in mind, there are thousands and thousands of mutual funds available. One good place to start is by going to www.morningstar.com .

      This is a website where you can search for mutual funds based on performance, type of investments, etc. Go to the “Funds” section and about 1/2 down the page you’ll see options to search for funds. You can select a lot of different criteria, depending on what’s important to you. Once you have decided on a fund, simply contact that contact and let them know you want to open up an IRA and have them send you the required paperwork (and depending on the fund, most have websites that and you can get the forms from their website). If you’re unsure, stick with some of the bigger names such as Fidelity, Vanguard, Dodge & Cox , etc. Just call them up and they’ll walk you through the process over the phone.

25. QUESTION:
    Rollover 401k to IRA, After tax dollars?
    I have a 401k that includes before tax and after tax dollars. I plan to roll it over into an IRA (s). Can I roll the before tax dollars into a Tradational IRA and the after tax dollars into my existing Roth IRA?

    • ANSWER:
      Yes to the former and no to the latter. After-Tax dollars are different than Roth designated contributions mostly because the tracking mechanism wasn’t in place for after-tax dollars.

26. QUESTION:
    Leave Rollover IRA alone, or transfer it to new job’s 401k?
    I’m not eligible for my new job’s 401k for another year.

    Once I am eligible, should I move my Rollover IRA to the new 401k or just leave it alone?

    (Oh – and to confirm – I can do this, correct? I’ve heard conflicting info on whether you can move a Rollover IRA to a 401k.)

    • ANSWER:
      yes you can do it.
      and today, the answer is surely not obvious.
      the market is crummy at best.
      and the value of the dollar is declining.

      i let someone else manage my investments.
      it’s not that i’m dumb, but understanding the vagaries of the stock market is not easy.

      despite bush’s often touted “i think you should be in charge of your money”, it’s been shown over and over and over that, in most cases, that’s simply not true. ordinary folks just are not good investors.

      for several years, i’ve owned DODFX and DODGX funds, and they’ve done well. but i’ve just sold them. like many others, they’re just not doing well these days.

      it’s been suggested that we’ve not seen the bottom of this recession yet. it could get even uglier.

      depending on the options available in your company’s 401k, if you don’t have to invest in company stock, it’s probably not a bad idea to roll it in. it’s likely that they won’t pick bad managers, so they’re likely to do better than you’ll probably do on your own.

27. QUESTION:
    401K rollover to IRA – TT wants me to pay tax next year?
    I rolled from employer 401K into traditional IRA. Received 1099-R with a G distribution code. Entered all this into Turbo Tax. When I print my tax form it shows that on form 8606 that I will be taxed for 50% next year and 50% the following year. What am I doing wrong? This should not be taxable.
    No it was a traditional ira.

    • ANSWER:
      As everyone says, it’s being treated as a Roth conversion. Either the form is wrong or you unknowingly made the wrong transfer.

28. QUESTION:
    Where in 1040 does one report 401k to IRA rollover–16a or 16b?

    • ANSWER:
      If it was rolled over from a traditional 401K to a traditional IRA or from a Roth 401K to a Roth IRA, then report it only on 16a, and write the word “rollover” next to it.

      If it was rolled over from a traditional 401K to a Roth IRA, then it must be reported both on 16a and on 16b.

29. QUESTION:
    What do I do with my old 401K, invest in IRA or rollover into new 401K?
    I recently switched jobs and have 3500 in my old companies 401K but since it is under 5k they are making me close the acct. Shoudl I roll it over into my new companies 401K (which I wont be able to do until march) or do I invest in a Roth IRA?

    • ANSWER:
      Roll it over into a Rollover IRA. From there, you can transfer so much into a Roth IRA over the course of a few years.

30. QUESTION:
    Can you roll your Rollover IRA into your new 401k?
    I have some money in my old 401k account with my old employer that when I left, I rolled it over to an IRA cuz my old 401k plan/provider suck. Now that I have a new job with a new employer that have a very good 401k plan, I was wondering if I can roll my old 401k from the IRA over? Or are you only allow to roll from 401k to 401k only. I know you can roll from 401k to IRA, but does it work the opposite too?

    • ANSWER:
      Why would you want to? With a IRA, you have complete freedom to place it with the custodian and investment of your choice without being limited by an employer’s 401(k) options.

31. QUESTION:
    1. Where in 1040 does one report 401k to IRA rollover?
    2. Where on 1040 does one report Roth IRA to IRA rollover and vice- versa?

    • ANSWER:

32. 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.

33. QUESTION:
    Rollover 401k to Traditional IRA or new company 401k?
    Hi, I’m 30 years old, single but will be married in a few months and the company I work for has new ownership so the 401k company is changing. I have the option to cash out my previous 401k, which I don’t want to do because of the tax implications. So, I have the option of doing a direct rollover to a Traditional IRA or my new 401k provider. I cannot rollover to a Roth IRA, etc.

    What should I do?

    I understand that FDIC insures higher amounts for IRA’s and covers up to 0,000 of bank deposited portions of 401k plans, so that is a huge upside to traditional IRA rollover. But, there is also a annual fee generally for the traditional IRA and a one time transfer fee.

    I’m planning on leaving this money in for the long haul but need advice on the best option.

    PS. I will start a new 401k regardless with the new provider since I get a 25% match up to 6 percent of my investment per month.

    THANKS!!!

    • ANSWER:
      You actually touch on a few different issues about rolling 401Ks to IRAs. First, although you can probably roll into the new 401K, I believe you are better off with an IRA rollover. That way, you have complete control over your investment, not the company’s plan.

      An IRA can be invested in many different things. If you have an IRA CD (which I don’t recommend for someone your age), it will be FDIC insured up to 0,000 currently. 401K plans are generally NOT bank deposited, so I’m not sure what you mean about the 0,000 figure.

      Your IRA rollover can be invested in mutual funds. If you know nothing about investing you can do one of 2 things: a) go to an investment advisor who will educate you and make recommendations; or b) do online investing with a low-expense mutual fund company like Vanguard, for example. They have an investment choice that is based on your current age, and they change the investments over the years to reflect how soon you will need the money for retirement.

      I suggest checking into both options and then making a decision. Good luck!

34. QUESTION:
    Should I rollover my Traditional IRA into my 401K?
    I just started a Traditional IRA account about a year ago, but just recently my company started a 401k for it’s fulltime employees. Should I contribute to both accounts or should I rollover my IRA into my 401k? Why or why not? If it matters, I have only about ,000 so far in both accounts.

    • ANSWER:
      First, check with your 401K plan and see if they will accept a rollover. I doubt it.

      Depending on your income, you might want to convert the traditional IRA to a Roth. This is advisable if you are in the 15% tax bracket but probably not if in the 25% or higher.

      If your 401K is with a good company that has low fees, I’d keep both accounts open but concentrate on funding the 401K to the maximum that gives you an employer match. Any other funds can go to the IRA, where you are in the driver’s seat with investment choices.

35. QUESTION:
    timing for rollover 401K to IRA?
    I have lots of money in my 401K from my last employer whom I retired from 2 years ago. I want to transfer these funds into a managed IRA. But I have been told by uninformed sources that I can withdraw from a 401k with no penalty but once I transfer to a ira I cannot do so. I will need sufficient funds middle of next year to purchase my condo (the fee simple option has been offered-only hawaii residents understand this) I become 59 1/2 at the end of the year. so I have been advised that I should keep my funds in the 401k withdraw what i need to make my purchase and then transfer the remaining fund to a managed IRA with a brokerage firm .

    • ANSWER:
      Why all the confussion?

      Distributions from 401(k)s are NOT subject to the same rules as distributions from IRAs.

      ERISA rules allow for penalty free distributions to be made from 401(k)s at age 55 provided you seperated from service with that employer after age 55.

      IRAs are subject to the 59.5 age requirement….401(k)s allow for this age 55 exception.

      It sounds to me as if your “uniformed” source was quite accurate and “informed.” (certainly more so than these other folks that posted answers about pre-59.5 penalties on 401(k) distributions).

36. QUESTION:
    Should I move my money from my 401k to a rollover IRA or leave it alone?
    I was recently laid off and I’m contemplating which move makes the best fiscal sense.

    • ANSWER:
      Never leave a 401K at an old company.

      You have two options.
      Leave it at your old job temporarily until you find a new job. Then you transfer the old job one to the new one – not recomended since I don’t like 401K’s because of high fees, and no flexibility in investments.

      2nd option – and best one.
      Call a discount broker.
      I like Charles Schwab.
      They will hold your hand through all this if you just give them a call.
      Tell them you need a roll over account, all you will have to do is sign the papers when they are mailed to you.
      You can buy 10 and 20 year cd’s or invest in the market.
      You can buy schwab etf’s or schwab mutual funds, even treasury notes.
      All at no cost whatsoever.
      They have never charged me a fee for anything under the sun.
      Do not deal with local banks for roll overs.
      They will fee you to death. Look up discount brokers and compare the fees.
      /

37. QUESTION:
    I rolled two former employers 401k plans into a Rollover IRA about 2 years ago. I want to roll it into my new?
    company’s 401k plan, but my broker says this cannot be done. They are calling what I have a ROLLOVER IRA and telling me those cannot be rolled over into 401k plans. Can anyone tell me if this is accurate info?

    • ANSWER:
      You CAN roll a rollover IRA into your new employer’s 401k plan under certain very specific conditions.

      1. The new employer’s 401k plan must specifically allow it.

      2. Your IRA must contain ONLY former 401k monies, and not ANY money that you yourself have contributed. If they have ever been mixed at any time, that is called “tainted” money and you cannot roll into the 401k.

      3. If you do decide to roll the IRA into the 401k, DO NOT TAKE POSSESSION of the money yourself. Have the custodian (the brokerage) send the money to the 401k plan. This is called a custodian to custodian transfer.

      “If you elect to open an IRA, keep the money separate or mix it only with other 401(k) or company-sponsored retirement fund money. That way, if you ever decide that you want to roll it back into a company-sponsored retirement plan, you have the option. Once you mix it with money that you’ve set aside apart from any employer plan, the money is considered tainted and can’t be reinvested in a company plan.”

      4. Depending on what’s in your IRA, the broker might have to sell some or all of the assets before transferring them. Are they invested in things you want to keep? If so, it might be good to keep the IRA.

      It is usually advantageous to keep the money in the IRA because your investment choices are greater. The downside is that, unlike a 401k, you can’t borrow money from your IRA. But you shouldn’t be doing that anyway, you should be leaving the money to grow for your retirement.

38. QUESTION:
    401k Rollover to IRA while employed?
    Seeing how I’ve lost so much money in my company contribution 401k this last week, I want to rollover my current funds to a Traditional IRA with my Bank, so I don’t lose my shirt. I’d keep making contributions to the 401k, but I’d be starting from Zero, with all my previous contributions and company matches in a trad.IRA. Is this allowed? I’ve heard of doing a rollover when you leave a company, but what about while you’re currently employed there.

    • ANSWER:
      Why not just put your investments in a safer investment. Rolling into an IRA won’t help if you just roll them into similar investments.

      In any case, because you will not have been terminated from your firm, you would have to pay the 10% penalty plus the taxes on early withdrawal if you attempted to roll them into an IRA. There may, however, be a way to roll over the employer contribution part of your 401(k). Check with your plan administrator on whether this is allowable.

39. QUESTION:
    401K Rollover into IRA?
    I am no where near retirement, but I have 5K in my old 401K I’d like to rollover into a self directed IRA. Now K of that 5 is considered “after tax”. So I should be able to rollover 0K into the IRA, and keep K for a shopping spree, without incurring any taxes or early widthdraw fees. Am I missing something? Only quality answers, please.

    • ANSWER:
      I am a tax accountant & do not think that you are able to withdraw K without incurring the 10% early withdrawal fee, unless you meet one of the exceptions to the early withdrawal fee, such as being separated from service (fired or otherwise let go) in a year in which you turned 55.

      Check out IRS Publication 590.

40. QUESTION:
    Roll former employer 401K to current 401K or IRA?
    I have a decent amount of money in a former employer 401K plan. Should I roll it all to my current employers 401K plan, roll it into a Rollover IRA or split it to both?

    And if I pick the IRA, should I elect to invest in Mutual Funds & Stocks or Money Market Savings?
    Thanks!

    • ANSWER:
      Roll it into a self-directed IRA…not your current employer’s 401(k).

      No matter how good your current 401(k) may seem, it is going to be more limited than an IRA. Besides, you never know if/when they might pull the rug out from under your feet and change the investment options (or worse…they never make upgrades).

      Don’t even get me started on the potential beneficiary issues with 401(k).

      This is a no-brainer…roll it into an IRA.

41. QUESTION:
    can i rollover my 401k into two IRA accounts, one in Fidelity, one in Vanguard?
    I am about to change job thus need to rollover my 401k into an IRA account. I want to try both Vanguard and Fidelity. So is it possible to split my 401k balance half half, and deposit into Vanguard and Fidelity respectively? Thanks!

    • ANSWER:
      Sure you can do this. Just be sure to make this a rollover transaction and not a withdrawal. THis way you won’t be taxed on the funds. But I’d question you as to why you are doing this. What do you mean by “try” both Fidelity and Vanguard. You can likely purchase the same funds through each bank. I’m not sure there is any added benefit there.

42. QUESTION:
    Can you rollover a 401k to an IRA without leaving your job?
    Just wondering if it was possible to do this. It would definitely be great to sock away the money in the 401k, get the match, and then roll it to an IRA where I could actually get some decent investment options.

    So, does the IRS promote sound investing (let you roll over and make your own choices) or job instability (quit jobs as frequently as possible to be able to put your money where you want it)?

    Thanks.

    • ANSWER:
      I always wondered about that, because when I got laid off a few years ago, I rolled my 401K into an IRA where I have very flexible choices. My new 401K has fairly limited choices (most of them are bad) but I cannot withdraw funds, unless it is a “loan” (which has to be paid back). I suspect that is typical. But if I get laid off again, I can roll the new one over, too.
      Government regulations often have unintended consequences. When you reward certain behavior, you get more of it.

43. QUESTION:
    Why does Suze Orman say to put your 401k rollover from previous employer in traditional IRA?
    Suze Orman gives advice that people should rollover your previous employment 401k into traditional IRA. Then she says that in 2010 to move this traditional IRA money to a Roth IRA.

    Several Questions:
    1. What is a “traditional” IRA?
    2. What is the logic/benefit to move it to a Roth IRA in 2010?
    3. Won’t it get taxed once it is moved to Roth IRA? If not, why not?

    • ANSWER:
      1. A traditional IRA is a tax-deferred account. You can contribute up to ,000 per year and reduce your taxable income. In other words, you pay no taxes on the contribution, but it grows tax-free until you withdraw it (at which it is taxed as ordinary income)

      2. Some think that our tax rates must go up since they are currently at historic lows. So pay a low tax now and then no taxes later (Roth). So, Bush’s tax cuts go away in 2010 so our taxes will go up in 2011 when Congress doesn’t renew them. Plus, in 2010, even high income people not normally eligible for a Roth will be able to convert.

      3. It will be taxed when you move it over. But you will never have to pay taxes on that money again!

      Note: you should not do this if you are close to retirement and have a large percentage of employer stock in your 401k.

44. QUESTION:
    When you rollover a 401k account to an IRA at the same brokerage, can you keep the same 401k portfolio?
    When you rollover a 401k account to an IRA at the same brokerage, can you keep the same exact 401k portfolio for your IRA? Will they do this for you automatically when you ask them to roll it over to the IRA? At least for now, I would like to keep the same exact portfolio I had for my 401k for my IRA. Thank you.

    • ANSWER:
      maybe. Depends on the brokerage firm. they will not do that for you automatically you will need to contact them arrange for that to happen providing they offer the same funds and investments in the IRA account as the 401k portfolio. Keep in mind there may be fees associated with them doing that for you.

45. QUESTION:
    Can you rollover a 401k to an IRA and then take a distribution without paying taxes?
    I am leaving my job and want to use a portion of my 401k savings in the meantime. I was told that there is a way to roll the money into an IRA and then withdrawl without penalty. This seems odd to me, but definitely something worth finding out about.

    • ANSWER:
      This is a muti-facited question. If you are 59 & 1/2, you can roll over a 401-K to an IRA. You can withdraw any amount “penalty free”, but not “tax free” .

      If you are under age 59 & 1/2 you can “annuitize” the entire amounts and begin periodic withdrawals over your life expectancy. However, you cannot change the withdrawal amount until you have attained age 59 & 1/2 and a minimum of 5 years have passed from the 1st withdrawal. Again, this is “penalty free”, but not “tax free”.

      It is possible if your income level is low enough that you might not owe any taxes on the IRA withdrawal, but you would still owe the 10% premature withdrawal penalty if under 59 & 1/2.

      I would suggest that you contact a reputable investment advisor (A.G. Edwards, Edward Jones, Merrill Lynch, etc.) They should be able to help you navigate this area.

      As a CPA for 31 years, preparing about 250 returns per year for income levels of poverty up to 0,000 per year I wish to reply to the guy that said “only the rich don’t pay taxes”. We have a “progressive” tax structure. The more you make, the more you pay. What you would call the poor pay little or no income tax (in fact they receive a subsidy known as “earned inome tax credit”). Middle income pays taxes, upper incomes pay a larger precentage of income, and the rich pay the highest as a percentage of income. If your income is above a certain limit (about 0,000) then you lose your itemized deductions and personal exemptions.

46. QUESTION:
    At 31 yrs old is it best to roll previous comp. 401k into rollover IRA or Roth IRA i know w roth u pay tax now

    • ANSWER:
      Ahhh, the million dollar question for Roth accounts…

      And the answer is – it depends (sorry). Unfortunately, you need a crystal ball for this one. Your decision will likely come down to what you believe the future holds. You need to consider several factors, but you basically have two courses of action to take.

      1) Take the sure thing – Roll your 401(k) into a traditional IRA and then convert it to a Roth IRA, paying tax upon the principal and earnings at your current income tax bracket. The conversion option is currently subject to AGI limitations, so check with the IRS or a competent accountant first.

      2) Let it Ride – Simply roll your 401(k) into a traditional IRA and enjoy tax-free compounding of interest until you are able to take a qualified distribution (usually at retirement) at which time you will pay taxes on the principal and earnings at your future income tax rate.

      So, look into your crystal ball…

      Do you believe that you will be in a higher tax bracket at retirement age than you are right now? If so, the Roth conversion option may be the right choice for you as you will likely pay less in tax today than you would 35 years from now. Likewise, if you believe you will be in a lower tax bracket in retirement, it makes more sense to simply roll your account to a traditional IRA, enjoy your tax deferral over the years, and pay the piper upon retirement.

      There are several wild cards to consider in this scenario, not the least of which is the possibility that tax brackets change. If you want my honest opinion, I think it is naive to assume that the historically low tax brackets we enjoy today will be around in 30 years. I am also 31 years old and, without getting political, just look at the current landscape of our country and its budget deficits. The cost of wars, strains on social security from aging baby boomers, etc, leads me to believe that the government is mortgaging our nation’s current problems and our generation will likely have to pay for it. And how will we pay for it? Higher taxes. All things being equal, if I were you, I would opt for the Roth conversion.

47. QUESTION:
    How to rollover to IRA from 401K without changing the job? If not possible, why this limitation imposed ?

    • ANSWER:
      You can’t rollover a 401k to an IRA account if you still hold the job associated with the 401k plan. The only circumstances that allow for this hypothetical rollover are if you no longer work for that company – then you can roll it into an IRA account, or if the employer closes out the 401k plan. Then you could roll it into an IRA account.

      This limitation is imposed to encourage future retirees to save more. The thinking is that employer sponsored 401k plans are more likely to be contributed to (because of employer matches, etc.) than comparable IRA’s.

48. QUESTION:
    401k rollover to Ira?
    I have changed from salaried to hourly at my company. I am being told I can not rollover my 401k into a IRA because I am still currrently employeed as an hourly. Also, I can’t make any contributions because I’m no longer salaried. Does this sound right? Should I be able to rollover the 401k?

    • ANSWER:
      That’s really odd that they will no longer allow you to contribute now that you are paid hourly. I was paid hourly and was able to participate in the company’s 401k program. You may want to read your employee handbook or ask human resources about the rules regarding hourly employees and 401k contributions. There may have been a misunderstanding somewhere along the lines. You are correct that your 401k funds are not allowed to rollover into an IRA unless you leave the company. If it is true that you are not allowed to contribute any more funds into your 401k, maybe you might want to open your own IRA account. This way you can continue to put aside money for your retirement on your own.

49. QUESTION:
    401K rollover to Rollover IRA & ROTH IRA after tax dollars?
    I have a 401K from a previous employer which contains both Pre tax dollars and After tax dollars. I would like to rollover this 401K to my Rollover IRA (pre tax dollars) and my Roth IRA (after tax dollars). I believe the rules beginning 1/1/2008 allow this rollover to take place as a normal rollover, but I’m getting conflicting information from my source & target broker. Can anyone add any insight or clarify my understanding?
    THANKS
    Thanks Elizabeth… by normal rollover I guess I meant Direct Rollover.

    In your example I would end up with 4 accounts (2 pre tax & 2 “after tax”/Roth account)? couldn’t I then “rollover” 2 of the accounts (1 pre, 1 roth) into the other accounts (1 pre, 1 roth)?
    Sorry, I just spent time with my source and target financial institutions and I’m amazed but I’ve gotten various responses when trying to get this accomplished. I BELIEVE it can be done, but would like some “official” IRA document I can send to these 2 brokers.
    THANKS Again

    • ANSWER:
      what is that old saying ” you can’t get there from here” you can do what you want but it will take two movements to get it done == transfer the accounts into new accounts with the receiver and once he receives them than he can combine them!!!

50. 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…