Calling Retirement Account Experts

the chi · 07-23-2010, 10:13 AM

Okay guys, I've done some research on my own, but I'm looking for real people input.

Here's the deal.

I have 2 401(k) accounts from previous employers.

I received a letter from the most recent company stating I need to take my money and do something with it (so they dont have to deal with it or me) but apparently my only option from them without incurring penalties is to put it in a Traditional IRA.

Or I can cash it out. With a 30% penalty after all taxes are said and done. It's a only a lil account, so I'm considering taking the hit and just throwing whats left at some low balance accounts to pay them off completely.

On the other account, I have actually had considerable growth in the several years since I left, so cashing that one out is out of the question, but I need to put it somewhere...and apparently they have no limitations regarding what type of IRA I use.

Info on me that could impact the choice:

I dont make crap for money right now.

I hope when I get around to retiring, (unless Im struck by lightning and decide to be a stay at home mom/wife) that I'm making at least decent money.

We want to save a ton of cash, maybe do a little investing and retire to another country, where we can live like kings before we're 70 years old. He's military, so as long as the govt doesnt tank, he'll have a retirement check coming in as well.

Thoughts?

Trip · 07-23-2010, 10:24 AM

For the small amount, you can do a rollover IRA and then transfer to something like a Roth or you can just cash out. Since it's small, it won't do you much good. What do you have with your gubbermint job? Anything? You could take the cash out and then boost your pay percentage into the gubbermint one til it evens out with what you took out of your old one.

For the large amount, if you are happy with the 401k, tell your ex employer to fuck themselves. No harm in leaving it in the 401k.

shmike · 07-23-2010, 10:37 AM

The 30% penalty is BOGUS. There is no such thing.

If you cash the account in, they will automatically withhold 20%. Because you are under age 59.5, there will be a 10% early withdrawal penalty. If you don't make much money, your tax liability will be significantly less than 20%.

In this case 20 + (ten)10 DOES NOT equal 30. Whatever you over paid in withholding, you'll get back next year when you file your taxes.

If the money is pre-tax (most likely) then your only option (to keep to tax deferral going) is to roll it into a traditional IRA or your current employer's plan.

Don't get confused by the "types" of IRA's. There are only 2: Traditional and Roth. Traditional keeps your money as it is (pre-tax). A Roth may have its advantages but that is a whole seperate discussion.

shmike · 07-23-2010, 10:42 AM

Quote:

Originally Posted by Trip

For the large amount, if you are happy with the 401k, tell your ex employer to fuck themselves. No harm in leaving it in the 401k.

True but you probably don't have to tell them anything.

Most plans have a provision that says you have to take your money if you have less than $X in the plan (employer 1).

If you are above that threshold (employer 2) they won't ask you to take the money out.

The reason(s) to roll it over would be better fund selection, greater control, more flexible tax withholding on withdrawals.

If you are happy with the investment choices and are in kind of a "set it and forget it" mentality, leave it where it is.

the chi · 07-23-2010, 10:44 AM

Thanks for the input!

I dont have anything with my current job. The way it works is after my 1st full year of employment I get off probation and at that time I am eligible to stop paying into SS and put that cash into a GMA acct (basically a 401K).

I'm definitely a "set it and forget it type". My oldest account is invested in Bonds. Thats it. Something about playing with my hard earned money and taking a chance on losing it in something more risky but higher paying makes me cringe. The hubby is big into all that kinda stuff. I dont want to know about it or deal with it. CD's, no risk investment, etc are more my style.

Homeslice · 07-23-2010, 01:06 PM

Why cash it out, unless you have some high-interest debt to pay off?

You should roll it into a Traditional IRA, which wouldn't have any penalty, or you could check to see whether you're allowed to roll it into a Roth IRA, after paying taxes on it of course.

Basically a Roth IRA is for someone is willing to pay taxes on it now, because they think they'll be in a higher tax bracket when they retire.

shmike · 07-23-2010, 01:20 PM

Quote:

Originally Posted by Homeslice

Why cash it out, unless you have some high-interest debt to pay off?

You should roll it into a Traditional IRA, which wouldn't have any penalty, or you could check to see whether you're allowed to roll it into a Roth IRA, after paying taxes on it of course.

Basically a Roth IRA is for someone is willing to pay taxes on it now, because they think they'll be in a higher tax bracket when they retire.

You can't "roll" into a Roth.

Either way it has to go to a Traditional IRA. Once it is there, she can convert it to a Roth.

If you only had $500 in there, it might be worth the $100 hit to not have to deal with the paperwork required to set up an IRA.

Switch · 07-23-2010, 01:59 PM

I've always rolled my over to a Roth IRA.

shmike · 07-23-2010, 02:11 PM

Quote:

Originally Posted by Bonesaw

I've always rolled my over to a Roth IRA.

Then you haven't been working very long.

It's only been an option since 2008. Many plans still don't allow it.

My previous post is misleading: It can be done in some instances but not the chi's.

Trip · 07-23-2010, 03:33 PM

Quote:

Originally Posted by shmike

Then you haven't been working very long.

It's only been an option since 2008. Many plans still don't allow it.

My previous post is misleading: It can be done in some instances but not the chi's.

He's a youngun.

07-23-2010, 10:37 AM	#3
shmike Follower Join Date: Nov 2008 Posts: 5,549	The 30% penalty is BOGUS. There is no such thing. If you cash the account in, they will automatically withhold 20%. Because you are under age 59.5, there will be a 10% early withdrawal penalty. If you don't make much money, your tax liability will be significantly less than 20%. In this case 20 + (ten)10 DOES NOT equal 30. Whatever you over paid in withholding, you'll get back next year when you file your taxes. If the money is pre-tax (most likely) then your only option (to keep to tax deferral going) is to roll it into a traditional IRA or your current employer's plan. Don't get confused by the "types" of IRA's. There are only 2: Traditional and Roth. Traditional keeps your money as it is (pre-tax). A Roth may have its advantages but that is a whole seperate discussion. __________________ Racing For Smiles

07-23-2010, 01:59 PM	#8
Switch dadbod Join Date: Feb 2008 Location: East TN Posts: 1,215	I've always rolled my over to a Roth IRA. __________________ It's fine.

07-23-2010, 10:24 AM	#2
Trip Hold mah beer! Join Date: Feb 2008 Location: 80 Miles South of Moto Heaven Moto: 08 R1200GS Posts: 23,268	For the small amount, you can do a rollover IRA and then transfer to something like a Roth or you can just cash out. Since it's small, it won't do you much good. What do you have with your gubbermint job? Anything? You could take the cash out and then boost your pay percentage into the gubbermint one til it evens out with what you took out of your old one. For the large amount, if you are happy with the 401k, tell your ex employer to fuck themselves. No harm in leaving it in the 401k.

07-23-2010, 01:06 PM	#6
Homeslice Elitist Join Date: Nov 2008 Location: SF Bay Area Moto: Gix 750 Posts: 11,351	Why cash it out, unless you have some high-interest debt to pay off? You should roll it into a Traditional IRA, which wouldn't have any penalty, or you could check to see whether you're allowed to roll it into a Roth IRA, after paying taxes on it of course. Basically a Roth IRA is for someone is willing to pay taxes on it now, because they think they'll be in a higher tax bracket when they retire.