Switched jobs... 401k rollover advice

[WharfRat+]

Again i'm not much of an investing wiz so any advice would be appreciated.

Have about 45k in a Fidelity 401k from my old job. Should I roll that over into a new 401k with Morgan Stanley through my new job, or roll it into a personal IRA? I have an IRA with only about $3k in there (Vanguard)

I'm 31 yrs old. Have money in savings so it will most likely not be needed at all until retirement. Hopefully at least.

 

[PercocetThreat]

You will most likely have more investment options if you roll into an IRA. 401(k)'s usually limit your investment options to 20 or so mutual funds.

 

[D2bets]

Roll it into an IRA

 

[Illini]

Roll it into an IRA. Then, as you can afford to pay the taxes with your savings, convert as much as you can each year into a Roth IRA. From that point on, all income from it will be completely tax free for the rest of your life.

 

[PercocetThreat]

Roll it into an IRA. Then, as you can afford to pay the taxes with your savings, convert as much as you can each year into a Roth IRA. From that point on, all income from it will be completely tax free for the rest of your life.

Transferring money from a Traditional to a Roth IRA would be an end-run around paying taxes. I know for a fact it is illegal and I'm pretty sure the investment house will not let you do it. Is that what you meant? I may be misinterpreting.

 

[cmoneybettor]

Can anyone provide a few good companies with solid IRAs? I am considering moving my 401k from an old employer to an IRA from Janus but who else should I consider?

 

[desrat]

Transferring money from a Traditional to a Roth IRA would be an end-run around paying taxes. I know for a fact it is illegal and I'm pretty sure the investment house will not let you do it. Is that what you meant? I may be misinterpreting.

Not illegal at all. The only issue is if you meet the income levels for conversion. When you convert to a Roth you pay taxes on your gains so far; therefore there is no end-around.
From investepdia:

Ways of Funding a Roth IRA
A Roth IRA may be funded through regular IRA contributions and assets converted from existing Traditional, SEP or SIMPLE IRAs. To make regular IRA contributions, an individual must have eligible compensation for the year and must meet the following requirements:

• If an individual's tax-filing status is 'single', his or her modified adjusted gross income (MAGI) must not exceed $110,000. An individual filing single may contribute up to $4,000 for 2005 if his or her MAGI is less than $95,000. For individuals whose MAGI is between $95,000 and $110,000, the contribution limit is 'phased out'. This means a special formula must be used to determine the dollar amount that such individuals may contribute to the Roth IRA for the year. (The formula and step-by-step instructions are included in the chapter "Eligibility Requirements" in the tutorial Roth IRAs.)
• If an individual's tax-filing status is 'married filing jointly', the combined MAGI of both spouses should not exceed $160,000. Each spouse may contribute up to $3,000 if their combined MAGI is not more than $150,000. If the couple's MAGI is between $150,000 and $160,000, the contribution limit is phased out.
• If an individual's tax-filing status is 'married filing separately', his or her MAGI must not exceed $10,000. If his or her MAGI is between $0 and $10,000, the contribution limit is phased out.

To fund a Roth IRA by means of Roth IRA conversions, an individual's MAGI must be $100,000 or less. This limit applies to individuals who file as single and those who file as married filing jointly. Individuals who file as married filing separately are not eligible for Roth IRA conversions.

In fact there is the potential for a "back door" Roth for people who earn over the income limits. As my wife and are currently doing this I know it is legal. You fund a non deductible Traditional IRA now and up until 2010 when the Income cap for conversions is removed. COnvert to a Roth, pay taxes on your gains, and you now have all the benefits of a Roth.

Details about the "back-door"
http://www.retirement-retirement.co...n_Now_Take_Advantage_of_a_Roth_IRA__s1496.php

 

[desrat]

Can anyone provide a few good companies with solid IRAs? I am considering moving my 401k from an old employer to an IRA from Janus but who else should I consider?

My suggestion is go with a brokerage company that allows you to trade a variety of asset classes in your IRA. By going with a Janus or other fund family you tend to be pigeonholed in your choices. You can buy any mutual fund and will not be limited in your choices, plus you can buy single stocks or ETFs if that is of interest to you. Look for a broker that allows you a wide selection of choices and low fees.

 

[PercocetThreat]

Yes you can transfer a Traditional to a Roth. However, you cannot transfer without paying taxes, that's what I thought he was saying. You have to claim the transfer amount as income in the year of transfer. For most people that is a losing proposition.

Another thing people need to remember about the Roth is that you have to pay income taxes on any withdraws made if certain requirements are not met. If you do not meet the requirements and make a withdraw you will get double taxed (at the time of contribution and the time of withdraw). One of the requirements is you have to be Age 59.5 before any withdraws. There are other reqt's but I'm not sure of what they are, I'm sure they can be found by googling.

 

[PercocetThreat]

My suggestion is go with a brokerage company that allows you to trade a variety of asset classes in your IRA. By going with a Janus or other fund family you tend to be pigeonholed in your choices. You can buy any mutual fund and will not be limited in your choices, plus you can buy single stocks or ETFs if that is of interest to you. Look for a broker that allows you a wide selection of choices and low fees.

Yup. Another thing to keep in mind is that some places (Vanguard for example) crush you with fees when you buy individual stocks. I would recommend a TD Waterhouse type discount broker.

 

[D2bets]

Yes you can transfer a Traditional to a Roth. However, you cannot transfer without paying taxes, that's what I thought he was saying. You have to claim the transfer amount as income in the year of transfer. For most people that is a losing proposition.

Another thing people need to remember about the Roth is that you have to pay income taxes on any withdraws made if certain requirements are not met. If you do not meet the requirements and make a withdraw you will get double taxed (at the time of contribution and the time of withdraw). One of the requirements is you have to be Age 59.5 before any withdraws. There are other reqt's but I'm not sure of what they are, I'm sure they can be found by googling.

That's not quite true. In fact, you can withdraw up to the actual amount of your total contribution amounts to the Roth at any time tax-free and penalty-free, no questions. Of course you wouldn't want to do that, but in a pinch you could. So for example, if you contribute $4,000 per year for 5 years to a Roth and then after 5 years the account value is $35,000...you could withdraw $20,000 tax-free and penalty-free if you wanted. If you withdrew in excess of your contributions then you pay tax and 10% penalty (unless you are over 59.5 and have held the account for at least 5 years). This is one of the reasons why contributing to a Roth is a no-brainer if you qualify and have any excess available cash.