[CHIZ]

Hey everyone,

In a few months here I'm leaving my job in Los Angeles and returning home to a better paying job near my family in the Midwest! :

My new job does not have a 401K setup. Its a smaller business than the corporate giant I am leaving. I have been advised to roll my 401K into an IRA when I make the move. Since I have a traditional 401K right now, should I roll it into a traditional IRA? Or roll it into a Roth IRA? Obviously I have NO desire to cash out. That'd be silly...

Also, in your opinions, who's the best bank these days to open an IRA with (most bang for my buck!)....What would you all do? I'm single, no dependents, and enjoying my last year of my 20's!

 

[RoomToRoam]

Avoid a bank, I would use a fund company; American Funds, Lincoln funds something like that directly, TD ameritrade can also set it up for you. If you want an advisor, I would use a smaller local advisor, maybe a local Edward D Jones.
With a Roth - you would need the cash to pay the income taxes, nice if you can swing it.
If your new company doesn't have a 401k- you can add quite a bit into your IRA every year (taxfree)

 

[home in oz]

Why not let the 401K money alone, and add the new money you earn to a ROTH IRA?

 

[Wayson]

Why the caveat about avoiding banks? Any money you hold in cash in the IRA will be held in a bank, so I'm not seeing the point. Disclosure: my IRA is through Fidelity.

OP, to elaborate on what Room said, only go Roth if you have the cash in hand to pay the taxes. If you would need to use part of the IRA's money to pay the taxes, just go traditional. Long-term, Roth will be better hands down due to no taxes on earnings or distributions, and since you're in your late 20s you have plenty of time left to make it worthwhile. The only reason I see to use a traditional 401k or IRA is if your contributions will drop you into a lower tax bracket, and even then I would still prefer to allocate the majority of funds to a Roth option where possible.

 

[Nomad-max]

If you go with a Roth IRA you will be taxed on the entire amount you roll. The Roth is 'after tax' money where the traditional IRA is 'pre-tax'. So if you don't want to or can't afford to add the balance you transfer to a Roth to your taxable income you may want to go traditional.
You can split it between both too as another option - you need to take you tax/credits/write-offs for the year into consideration before you make these types of decisions.

good luck!

 

[TheGecko]

I recommend you go on over to a provider which has a mix of decent stock funds along with equity options for your 401K to IRA conversion. Leaving the money in an old 401K limits you ability to dollar cost average.

With your new employer have no tax deferred option, I would start a normal before tax IRA and add funds with the money you roll over. You can still also have a Roth IRA for after tax money.

I personally like Schwab for this purpose. Vanguard is decent if you are looking to go the index fund/low expense route.

 

[PalmettoTree]

Hey everyone,

In a few months here I'm leaving my job in Los Angeles and returning home to a better paying job near my family in the Midwest! :

My new job does not have a 401K setup. Its a smaller business than the corporate giant I am leaving. I have been advised to roll my 401K into an IRA when I make the move. Since I have a traditional 401K right now, should I roll it into a traditional IRA? Or roll it into a Roth IRA? Obviously I have NO desire to cash out. That'd be silly...

Also, in your opinions, who's the best bank these days to open an IRA with (most bang for my buck!)....What would you all do? I'm single, no dependents, and enjoying my last year of my 20's!

I rolled several 401K's into a self directed IRA during my career. I use Ameritrade. They have never given me a reason to change. I am an investor not a trader so I do not mind the almost $10 commissions vs. $6. They offer 100 commission free ETF which is where you should start if you are not up to speed on analysis of balance sheets, income and cash flow statements.

If you are interested in my investing thought process let me know.

 

[PalmettoTree]

Why not let the 401K money alone, and add the new money you earn to a ROTH IRA?

Never leave your money former employer's 401K plan.

 

[PalmettoTree]

Only roll into a ROTH if you have the money to pay the taxes without using part of the roll over funds. Pulling money out of deferred accounts to pay taxes puts you at a compounding disadvantage.

 

[Grotius]

I did exactly what you're in the process of - moving from one employer to another and rolling your current 401(k). Here are a few thoughts:

• Avoid leaving your money with your former employer;
• Roll into an IRA with a broker who you can work with in the future - either Edward Jones or Vanguard offer offices in many locations;
• As you get older your needs will change;
• Decide how much time you'll spend on your investments - it is often easier to work with someone else than go it entirely alone if you have other things going on in your life;

Find out precisely what the numbers are before you make a decisions between rolling into a Roth IRA versus a traditional IRA. You may be considerably further ahead by paying whatever taxes are required now, in your late 20s, to roll into a Roth IRA - which should save you thousands of dollars in your late 60s when you begin to withdraw money from your Roth IRA. With a Roth your withdrawals are not taxed (unless tax laws change), whereas with a traditional IRA - where your deposits were deducted from your pay pre-tax, your withdrawals will be taxed at whatever income tax rate exists when you are in your late 60s. It is possible that the taxes you'd pay now in your 20s might be considerably less than whatever the tax rates will be some 40 years in the future (mid-2050s). Food for thought.

I have found working with an investment advisor to be useful - but acknowledge that others take pride in not wanting nor needing any outside help. This depends entirely on how comfortable you feel making investment decisions, and what sort of investment background and education you have.

Best with your decision.

 

[unno2002]

When I retired, at the first possible moment I rolled my 401k type account to what amounts to a "real estate" IRA type account. The account owns fully paid for rental homes. Since we do not need the money yet, the rents accumulate in the account, and when there is enough, we make an upgrade to a property.

 

[Nomad-max]

I have a question for the money people...

I understand money can be contributed into an IRA up to April 15th of '2014' and have it be reflected on your '2013' taxes lowering your gross income as a result.
My question is about rolling money from a 401k account into a Roth IRA or taking a withdrawl out of the 401k altogether. If you move money into the Roth IRA from a 401k on say March 15th of 2014 would the tax hit be on your 2013 or 2014 tax years? Same basic question if you took a withdrawl of some 401k funds on the same date.

Thanks...

 

[PalmettoTree]

You are taxed on the year you move to a ROTH or take a withdrawal.

 

[Grotius]

Not to be Captain Obvious, but you're only taxed on that withdrawal if you keep it. If you withdraw funds from a 401(k) or Roth IRA and then directly roll those funds into some other qualified tax-advantaged investment account, (as you might if you left one job and then rolled your previous plan to the savings plan of your new employer,) you don't owe the taxes on that withdrawal.

 

[unno2002]

When I retired, at the first possible moment I rolled my 401k type accound to what amounts to a "real estate" IRA type account. The account owns fully paid for rental homes. Since we do not need the money yet, the rents accumulate in the account, and when there is enough, we make an upgrade to a property.

 

[Watchingtheweasels]

My new job does not have a 401K setup. Its a smaller business than the corporate giant I am leaving. I have been advised to roll my 401K into an IRA when I make the move. Since I have a traditional 401K right now, should I roll it into a traditional IRA? Or roll it into a Roth IRA? Obviously I have NO desire to cash out. That'd be silly...

With capital controls and asset confiscation a very real possibility, cashing it out may not be as silly as traditional financial wisdom would dictate. Consider that you are taking money that - in a traditional brokerage account - would be taxed at a 15% capital gains rate and putting it in a tax free account where, when you pull it out, it will be taxed at a much higher income tax rate. Wealthy people like the Clintons and the Obamas don't rely on tax deferred retirement accounts to accumulate wealth.

Before you roll over your 401k into an IRA, consider that although this will increase the ways in which you can invest the money, some states do not afford IRAs the same protection against creditors that 401ks are given. In the future, you may transfer to another company that does have a 401k. So rolling it over may not be the best option.

 

[ambos lados]

You Don't Say Anything About "Internationalizing" But...

With capital controls and asset confiscation a very real possibility, cashing it out may not be as silly as traditional financial wisdom would dictate. Consider that you are taking money that - in a traditional brokerage account - would be taxed at a 15% capital gains rate and putting it in a tax free account where, when you pull it out, it will be taxed at a much higher income tax rate. Wealthy people like the Clintons and the Obamas don't rely on tax deferred retirement accounts to accumulate wealth.

Before you roll over your 401k into an IRA, consider that although this will increase the ways in which you can invest the money, some states do not afford IRAs the same protection against creditors that 401ks are given. In the future, you may transfer to another company that does have a 401k. So rolling it over may not be the best option.

Disclosure: I don't live in the US, or have any US tax-deferred accounts. So, other than what I have learned from folks like you, I don't know much about them, though I presume they generally correspond to similar plans elsewhere.

Regarding cashing out retirement accounts, because I expect inflation to erode the value of money before I am finished needing money, what I am doing with similar accounts outside the US is phased withdrawals, taking chunks out each year to minimise the tax burden and spread it over several years.

Regarding internationalizing your assets, I also know quite a few ex-pat Americans, in Canada, Europe, Mexico and Central America. What I most often hear from them about US financial institutions is that broker Charles Schwab offers the best facilities for keeping money in the US that you may want to move to other locations around the world from time to time.

I personally only have experience with Interactive Brokers and Canadian Forex, both of whom give excellent internet-based service working with foreign stocks, different currencies, and favourable exchange rates. IB is definitely available to US residents, but they don't seems to make international transfers as easy as CS reportedly does for US citizens abroad.

 

[KittySlayer]

Rollover

You want a trustee to trustee rollover. NO withdrawals.

Not to be Captain Obvious, but you're only taxed on that withdrawal if you keep it. If you withdraw funds from a 401(k) or Roth IRA and then directly roll those funds into some other qualified tax-advantaged investment account, (as you might if you left one job and then rolled your previous plan to the savings plan of your new employer,) you don't owe the taxes on that withdrawal.

Be careful, you do not want to withdraw the money, you want to roll them over. In other words, a direct transfer from your old employers 401(k) directly to your new IRA account. You do not want to touch the money.

I think this is what Grotious really meant but the bad thing that can happen is you tell your old employer "I want to withdrawal my entire $10,000 401(k) balance". Old employer sends you a check for $7,500 because they withhold $2,500 in taxes. You have 60 days to fully fund an IRA with $10,000 to avoid the transfer being taxable.

 

[CHIZ]

Only roll into a ROTH if you have the money to pay the taxes without using part of the roll over funds. Pulling money out of deferred accounts to pay taxes puts you at a compounding disadvantage.

This was main concern going from traditional to roth. I do not have the money to simply pay the tax on a roth rollover. The money would come from the sum that's in my 401k.

I have found working with an investment advisor to be useful - but acknowledge that others take pride in not wanting nor needing any outside help. This depends entirely on how comfortable you feel making investment decisions, and what sort of investment background and education you have.

Yeah, I have zero experience in investing. The job I am leaving was my first full time job out of College and I've had my 401K being run by some professional financial group that my company uses (you pay a little from each paycheck to them and they constantly manage your portfolio for you so you get maximum growth)...So yeah..Anyway, my family has an accountant who I'll be speaking to about all of this in the next month or so.

You want a trustee to trustee rollover. NO withdrawals.

Be careful, you do not want to withdraw the money, you want to roll them over. In other words, a direct transfer from your old employers 401(k) directly to your new IRA account. You do not want to touch the money.

I think this is what Grotious really meant but the bad thing that can happen is you tell your old employer "I want to withdrawal my entire $10,000 401(k) balance". Old employer sends you a check for $7,500 because they withhold $2,500 in taxes. You have 60 days to fully fund an IRA with $10,000 to avoid the transfer being taxable.

^ Interesting.... If I wanted to roll my 401K into a Roth, they'd tax the 401K sum, and then I'd have to cover what was taxed in order to successfully transfer it into the roth? They don't just tax the money, and then that new sum becomes the starting sum of the roth IRA? The sum in the roth has to be what the original sum of my traditional 401K was at the time of the rollover?

 

[PalmettoTree]

I have been retired since 3 Jan. 2009; my wife 31 Dec. 2012. We have had no trouble enjoying our retirement; paying off our home $80K; putting down $60K on a beach house with a 3.75% mortgage and staying within the 15% tax bracket. All this on my social security and dividends from our IRAs.

One of the easiest ways to pick stocks is to look at the top 10 largest holdings of the two mutual funds you plan or advisor would have you in. Then put your money in the three companies from each without duplication.

I started by asking what would people need and investing in financially strong companies that also paid a dividend. Look to make sure the company is making a profit. Look to make sure the cash flow is three times the dividend payment. (I'd est 33%, 20% is better.) Divide the current assets by current liabilities and make sure that is above 1. (I'd est "current ratio") Divide total debt by stockholder equity and make sure this is less than one. (I'd est Debt to equity ratio)

Investing is not that difficult. Invest NOT to lose money and you will make money. Do not chase the home run stocks that go up 200% in a year. Learn from everyone; coup no one. Trading is gambling and you will always be a loser. Be an investor but learn even from the traders. Never trade on margin.