Personal Finance Advice and Education! (1 Viewer)

[bcat01]

I am 50 and was recently let go by my employer after 30 years. We were acquired a few years back and they decided to close our facility and move it.

I have a large sum of money in my 401k. Looking to roll it over into a Traditional IRA where my Roth is located.
I do not want to keep it in my current 401k and I do not want to roll it over into new 401k.

This is the right move correct?

What Instinctive said. What is the reason you don't want to keep it in the current 401K? Make sure to talk through all your options with the bank/firm that holds the 401K (no need to involve your former company) because they might have self directed brokerage where you can invest it however you want without giving up the advantage of having it in a 401K. And if you get new employment you might be able to roll it into the new 401K.

I can roll it into my new 401k. I'm just not sure I want to.

Currently my 401k is at Empower. Haven't been a fan of theirs. Looking to move to Fidelity where my Roth is. Feel there are more options and the customer support has been better.

What is the "advatage(s)" of keeping it in a 401k over an IRA?

An advantage of rolling it to the new 401k vs IRA is there is a rule of 55 where if you were to retire from the new company you can withdraw 401k funds without penalty. If you roll it to an IRA and decide to retire at 55 you can’t touch it until 59.5

Your company has to have the rule of
55 as part of their plan. I was told there are reasons a company would not want this, but not given specifics.

I understood it as an IRS rule, not plan specific but guess wouldn’t be surprised if that is true. It was my plan to take advantage of this rule but found out my company’s plan doesn’t allow for partial distributions so I don’t know how to use it if that’s the case

It is an IRS rule, but the plan can choose if they apply it.

 

[NutterButter]

I am 50 and was recently let go by my employer after 30 years. We were acquired a few years back and they decided to close our facility and move it.

I have a large sum of money in my 401k. Looking to roll it over into a Traditional IRA where my Roth is located.
I do not want to keep it in my current 401k and I do not want to roll it over into new 401k.

This is the right move correct?

What Instinctive said. What is the reason you don't want to keep it in the current 401K? Make sure to talk through all your options with the bank/firm that holds the 401K (no need to involve your former company) because they might have self directed brokerage where you can invest it however you want without giving up the advantage of having it in a 401K. And if you get new employment you might be able to roll it into the new 401K.

I can roll it into my new 401k. I'm just not sure I want to.

Currently my 401k is at Empower. Haven't been a fan of theirs. Looking to move to Fidelity where my Roth is. Feel there are more options and the customer support has been better.

What is the "advatage(s)" of keeping it in a 401k over an IRA?

An advantage of rolling it to the new 401k vs IRA is there is a rule of 55 where if you were to retire from the new company you can withdraw 401k funds without penalty. If you roll it to an IRA and decide to retire at 55 you can’t touch it until 59.5

Your company has to have the rule of
55 as part of their plan. I was told there are reasons a company would not want this, but not given specifics.

I understood it as an IRS rule, not plan specific but guess wouldn’t be surprised if that is true. It was my plan to take advantage of this rule but found out my company’s plan doesn’t allow for partial distributions so I don’t know how to use it if that’s the case

It is an IRS rule, but the plan can choose if they apply it.

Are u aware why they wouldn't other than that the love me and don't want to be able to retire early by taking advantage of this?

 

[Nick Vermeil]

I started a new thread due this but should have put it in here for the experts.

I'm considering a sale of a rental property and we are in line for a massive captial gain tax bill becuase we are mostly poor morons who don't understand finance and mistakes were made. We are aware that we can do a 1031 exchange where you buy like properties of equal or greather value in order to delay paying this tax, but we really want to pull some cash out of the sale. Our 1031 advisor just informed us about a Delaware Statutory Trust where you basically buy shares in an amount you determine of larger commercial properies (Amazon distribution centers, health care facilites, retirement homes, etc.) and it is a shorter term investment with no additional overhead after purchasing your share. It's baffleling to me that this is a thing.

Has anyone ever done this? I'd be interested in your thoughts and experience.

 

[matttyl]

Quick question on the implementation of a few aged based rules, just to make sure I understand….

Catch up contributions (in a 401k) hit the year you turn 50, not the month, correct? Even if you turn 50 on December 31, that year you can contribute the extra 7,500 - it won’t be prorated or anything - correct?

Same idea for ROTH IRAs, just the smaller catch up amount? And you can do these extra contributions in BOTH the 401k and a ROTH IRA in the same year (it’s not one or the other)? Same idea for HSAs, just at age 55.

The 59.5 rule for distributions is a day of, though - not the year you turn 59.5? So in the example of someone who’s birthday is 12/31 would need to wait halfway through the year they’d be turning 60, not 1/1 in the year in which they turn 59.5?

Do I have all that right?

 

[-OZ-]

Trying to roll over a Roth 401K from an employer into a Roth IRA:
Three options on Fidelity are:
Rollover IRA
Traditional IRA
Roth IRA

I assume Roth IRA but am confused by the Roller IRA. Does that imply pre-tax only?

I’m 99% sure the Rollover IRA is a traditional IRA. I can never recall seeing a Roth labeled a rollover. But Sand is right - call and make sure.

IIRC a rollover is really just a traditional or Roth, depends what your 401k consists of. When I rolled my TSP I had to open a traditional and funds went into both the Roth and traditional.

 

[SFBayDuck]

Quick question on the implementation of a few aged based rules, just to make sure I understand….

Catch up contributions (in a 401k) hit the year you turn 50, not the month, correct? Even if you turn 50 on December 31, that year you can contribute the extra 7,500 - it won’t be prorated or anything - correct?

Same idea for ROTH IRAs, just the smaller catch up amount? And you can do these extra contributions in BOTH the 401k and a ROTH IRA in the same year (it’s not one or the other)? Same idea for HSAs, just at age 55.

The 59.5 rule for distributions is a day of, though - not the year you turn 59.5? So in the example of someone who’s birthday is 12/31 would need to wait halfway through the year they’d be turning 60, not 1/1 in the year in which they turn 59.5?

Do I have all that right?

Yes, for catch up contributions, it's the calendar year you turn 50.

And yes, have to actually be 59 1/2 for contributions.

 

[Sand]

I started a new thread due this but should have put it in here for the experts.

I'm considering a sale of a rental property and we are in line for a massive captial gain tax bill becuase we are mostly poor morons who don't understand finance and mistakes were made. We are aware that we can do a 1031 exchange where you buy like properties of equal or greather value in order to delay paying this tax, but we really want to pull some cash out of the sale. Our 1031 advisor just informed us about a Delaware Statutory Trust where you basically buy shares in an amount you determine of larger commercial properies (Amazon distribution centers, health care facilites, retirement homes, etc.) and it is a shorter term investment with no additional overhead after purchasing your share. It's baffleling to me that this is a thing.

Has anyone ever done this? I'd be interested in your thoughts and experience.

That's something to post on bogleheads. Pretty specific question.

 

[Ridgeback]

So, I'm looking at rolling over my 401k into a Roth IRA and the only thing stopping me is the tax bill. The 401k is about 45k so the bill would be about 10k. I'm either paying now with the conversion, or paying when I withdraw out of a traditional IRA or if I leave it in the 401k.

Any other major considerations I'm missing? Not liking the tax bill when getting laid off. That being said my tax rate will be a bit lower this year, so....

 

[McBokonon]

So, I'm looking at rolling over my 401k into a Roth IRA and the only thing stopping me is the tax bill. The 401k is about 45k so the bill would be about 10k. I'm either paying now with the conversion, or paying when I withdraw out of a traditional IRA or if I leave it in the 401k.

Any other major considerations I'm missing? Not liking the tax bill when getting laid off. That being said my tax rate will be a bit lower this year, so....

You could roll it into a traditional IRA with no tax impact, and then maybe convert smaller amounts each year over time to stretch out the tax burden.

 

[Buckna]

So, I'm looking at rolling over my 401k into a Roth IRA and the only thing stopping me is the tax bill. The 401k is about 45k so the bill would be about 10k. I'm either paying now with the conversion, or paying when I withdraw out of a traditional IRA or if I leave it in the 401k.

Any other major considerations I'm missing? Not liking the tax bill when getting laid off. That being said my tax rate will be a bit lower this year, so....

I'd only recommend this if you are very diligent with your finances and pay it off timely, but you could sign up for a new credit card and pay the tax bill via one of the 3 online vendors (fee is slightly less than 2% which is offset by points on the spend and what you make on the sign-up bonus.) You could get a sign-up bonus and/or zero percent interest for a year depending on the card. Paying taxes this way is a pretty common tactic for credit card churning to meet spend requirements on new cards.

 

[Ridgeback]

So, I'm looking at rolling over my 401k into a Roth IRA and the only thing stopping me is the tax bill. The 401k is about 45k so the bill would be about 10k. I'm either paying now with the conversion, or paying when I withdraw out of a traditional IRA or if I leave it in the 401k.

Any other major considerations I'm missing? Not liking the tax bill when getting laid off. That being said my tax rate will be a bit lower this year, so....

I'd only recommend this if you are very diligent with your finances and pay it off timely, but you could sign up for a new credit card and pay the tax bill via one of the 3 online vendors (fee is slightly less than 2% which is offset by points on the spend and what you make on the sign-up bonus.) You could get a sign-up bonus and/or zero percent interest for a year depending on the card. Paying taxes this way is a pretty common tactic for credit card churning to meet spend requirements on new cards.

Yeah, that would be worthwhile if I could find a card with a zero percent offer for a year, and a fat signup bonus. Good callout, I'm in the churning game, to a point.

 

[Steve Tasker]

I started a new thread due this but should have put it in here for the experts.

I'm considering a sale of a rental property and we are in line for a massive captial gain tax bill becuase we are mostly poor morons who don't understand finance and mistakes were made. We are aware that we can do a 1031 exchange where you buy like properties of equal or greather value in order to delay paying this tax, but we really want to pull some cash out of the sale. Our 1031 advisor just informed us about a Delaware Statutory Trust where you basically buy shares in an amount you determine of larger commercial properies (Amazon distribution centers, health care facilites, retirement homes, etc.) and it is a shorter term investment with no additional overhead after purchasing your share. It's baffleling to me that this is a thing.

Has anyone ever done this? I'd be interested in your thoughts and experience.

DSTs are a viable 1031 alternative in that they "work" from a tax perspective. That said, from what I have seen, the fees charged in DST structures tend to be quite high, compared to a normal 1031 where you're really just paying the fee to the qualified intermediary. I've had a few clients consider DSTs in the past few years but none have gone through with it, I think mostly because of the fees.

You're going to want to consult with a tax CPA who has expertise in real estate transactions to make sure you're covering your bases.

 

[Buckna]

So, I'm looking at rolling over my 401k into a Roth IRA and the only thing stopping me is the tax bill. The 401k is about 45k so the bill would be about 10k. I'm either paying now with the conversion, or paying when I withdraw out of a traditional IRA or if I leave it in the 401k.

Any other major considerations I'm missing? Not liking the tax bill when getting laid off. That being said my tax rate will be a bit lower this year, so....

I'd only recommend this if you are very diligent with your finances and pay it off timely, but you could sign up for a new credit card and pay the tax bill via one of the 3 online vendors (fee is slightly less than 2% which is offset by points on the spend and what you make on the sign-up bonus.) You could get a sign-up bonus and/or zero percent interest for a year depending on the card. Paying taxes this way is a pretty common tactic for credit card churning to meet spend requirements on new cards.

Yeah, that would be worthwhile if I could find a card with a zero percent offer for a year, and a fat signup bonus. Good callout, I'm in the churning game, to a point.

If you're comfortable getting business cards, the Chase Ink's would be the way to go IMO. US Bank also has some elevated bonuses at the moment. Both have zero % for 12 months and offer very nice sign-up bonuses. Personal cards it can be harder to find a combo of large sign-up bonus and zero % but they are out there too.

 

[Bogart]

Got emails this week from AMEX and Apple about their HYSA APY dropping. Guess the days of a risk-free five percent return is coming to an end.

 

[Peggy]

Got emails this week from AMEX and Apple about their HYSA APY dropping. Guess the days of a risk-free five percent return is coming to an end.

Hope not. Shouldn't happen until the feds start cutting rates. But I'll be watching closely.

And I'm talking more sweep cash accounts. SPAXX for example.

 

[Sand]

Got emails this week from AMEX and Apple about their HYSA APY dropping. Guess the days of a risk-free five percent return is coming to an end.

Jamie Dimon was just talking about the possibility of rates going to 8%. Specifically, Chase has an anticipated spread between 2-8% down the line, so pretty much a shotgun blast. No telling where rates go from here.

 

[Nugget]

Got emails this week from AMEX and Apple about their HYSA APY dropping. Guess the days of a risk-free five percent return is coming to an end.

Vanguard Federal Money Market Fund - VMFXX is still paying out 5.27%. Short term treasuries are still in the 5.25% range, so they may be just pulling back to see if they can improve their profits.

 

[Sand]

Got emails this week from AMEX and Apple about their HYSA APY dropping. Guess the days of a risk-free five percent return is coming to an end.

Jamie Dimon was just talking about the possibility of rates going to 8%. Specifically, Chase has an anticipated spread between 2-8% down the line, so pretty much a shotgun blast. No telling where rates go from here.

 

[Ridgeback]

So, I'm looking at rolling over my 401k into a Roth IRA and the only thing stopping me is the tax bill. The 401k is about 45k so the bill would be about 10k. I'm either paying now with the conversion, or paying when I withdraw out of a traditional IRA or if I leave it in the 401k.

Any other major considerations I'm missing? Not liking the tax bill when getting laid off. That being said my tax rate will be a bit lower this year, so....

I'd only recommend this if you are very diligent with your finances and pay it off timely, but you could sign up for a new credit card and pay the tax bill via one of the 3 online vendors (fee is slightly less than 2% which is offset by points on the spend and what you make on the sign-up bonus.) You could get a sign-up bonus and/or zero percent interest for a year depending on the card. Paying taxes this way is a pretty common tactic for credit card churning to meet spend requirements on new cards.

Yeah, that would be worthwhile if I could find a card with a zero percent offer for a year, and a fat signup bonus. Good callout, I'm in the churning game, to a point.

If you're comfortable getting business cards, the Chase Ink's would be the way to go IMO. US Bank also has some elevated bonuses at the moment. Both have zero % for 12 months and offer very nice sign-up bonuses. Personal cards it can be harder to find a combo of large sign-up bonus and zero % but they are out there too.

Agreed. I'd have to get a business license, but that wouldn't be a problem as I've had one in the past for my properties. If I do make the transfer, the actual tax bill wouldn't be due for a year, so I've got some time to figure it out.

 

[Sand]

Very interesting study - the Life of Tax. These folks did a measurement of how much lifetime tax one pays per state. New Jersey is eye popping - taking over half of lifetime earnings (good grief that's extortionary!). Not surprisingly on a percentage basis Alaska is last thanks to their oil payments. Some are a surprise, like Mississippi, being high on the list.

 

[-OZ-]

Very interesting study - the Life of Tax. These folks did a measurement of how much lifetime tax one pays per state. New Jersey is eye popping - taking over half of lifetime earnings (good grief that's extortionary!). Not surprisingly on a percentage basis Alaska is last thanks to their oil payments. Some are a surprise, like Mississippi, being high on the list.

bottom 6!
I wonder if there’s any correlation to receiving government services, quality of life, and taxes.
Although there doesn’t seem to be a real correlation between high tax rates and high quality of life.

 

[NutterButter]

Very interesting study - the Life of Tax. These folks did a measurement of how much lifetime tax one pays per state. New Jersey is eye popping - taking over half of lifetime earnings (good grief that's extortionary!). Not surprisingly on a percentage basis Alaska is last thanks to their oil payments. Some are a surprise, like Mississippi, being high on the list.

Pretty cool. They're using earning and taxes from 2024? So for NJ, they're saying the median individual makes 40k per year (45 working years), but pays 16K in prop taxes (35 years of home ownership)? That can't be right.

 

[Peggy]

Just double checking because I never thought about it until the other day.

Doing 401K to Roth conversions doesn't have an age limit correct? I can start doing them at age 55 not having to wait until 59.5? Just have to be 59.5 before I take out of a retirement fund and start spending.

 

[matttyl]

Just double checking because I never thought about it until the other day.

Doing 401K to Roth conversions doesn't have an age limit correct? I can start doing them at age 55 not having to wait until 59.5? Just have to be 59.5 before I take out of a retirement fund and start spending.

Correct.

 

[-OZ-]

any strong feelings on TIPS vs I bonds for a 10-15 year window? These will also serve as an EF.
TIPS currently look like 2% + inflation, I bonds 1.3% plus inflation.
If I knew I wanted the money in 5 years or less it would be TIPS. Maybe I’ll split the purchase.

 

[D_House]

any strong feelings on TIPS vs I bonds for a 10-15 year window? These will also serve as an EF.
TIPS currently look like 2% + inflation, I bonds 1.3% plus inflation.
If I knew I wanted the money in 5 years or less it would be TIPS. Maybe I’ll split the purchase.

Are you thinking individual TIPS or a TIPS fund/ETF? And would you keep it in a taxable or tax-protected account?

Assuming you'd buy the TIPS in a taxable account for comparison purposes: the 0.7% lower rate and liquidity limitations of I bonds gets you tax deferral, no interest rate risk, no reinvestment risk (IE, all proceeds of your bond will also get the 1.3% fixed rate until maturity at 30 years), no threat to principal from deflation (variable rate can't drop below 0%), and (if below income limit) possible tax exclusion if used for education costs.

Additional I bond drawbacks are the requirement to use Treasury Direct, and the annual purchase limitations.

For me the biggest drawback to I bonds if having to have them at TD. If I could buy them at my brokerage, I'd be all over them. I just don't want 2 more accounts.

 

[-OZ-]

any strong feelings on TIPS vs I bonds for a 10-15 year window? These will also serve as an EF.
TIPS currently look like 2% + inflation, I bonds 1.3% plus inflation.
If I knew I wanted the money in 5 years or less it would be TIPS. Maybe I’ll split the purchase.

Are you thinking individual TIPS or a TIPS fund/ETF? And would you keep it in a taxable or tax-protected account?

Assuming you'd buy the TIPS in a taxable account for comparison purposes: the 0.7% lower rate and liquidity limitations of I bonds gets you tax deferral, no interest rate risk, no reinvestment risk (IE, all proceeds of your bond will also get the 1.3% fixed rate until maturity at 30 years), no threat to principal from deflation (variable rate can't drop below 0%), and (if below income limit) possible tax exclusion if used for education costs.

Additional I bond drawbacks are the requirement to use Treasury Direct, and the annual purchase limitations.

For me the biggest drawback to I bonds if having to have them at TD. If I could buy them at my brokerage, I'd be all over them. I just don't want 2 more accounts.

I’d buy either at TD, my wife and I both have accounts. There’s only $20k combined in them right now (bought in the fall with the 1.3% fixed rate). So I don’t see using TD as a negative.

It would be good to have the option to use these for education, although I don’t think we’ll use them for it. 3 kids left after the current two get through, so that is a possibility.

I think I’m going with I bonds and intend to keep them for the first few years of retirement. Or to help buy the lake house in 7-12 years. I set the purchase for April 30 but could change it.

 

[Peggy]

any strong feelings on TIPS vs I bonds for a 10-15 year window? These will also serve as an EF.
TIPS currently look like 2% + inflation, I bonds 1.3% plus inflation.
If I knew I wanted the money in 5 years or less it would be TIPS. Maybe I’ll split the purchase.

Are you thinking individual TIPS or a TIPS fund/ETF? And would you keep it in a taxable or tax-protected account?

Assuming you'd buy the TIPS in a taxable account for comparison purposes: the 0.7% lower rate and liquidity limitations of I bonds gets you tax deferral, no interest rate risk, no reinvestment risk (IE, all proceeds of your bond will also get the 1.3% fixed rate until maturity at 30 years), no threat to principal from deflation (variable rate can't drop below 0%), and (if below income limit) possible tax exclusion if used for education costs.

Additional I bond drawbacks are the requirement to use Treasury Direct, and the annual purchase limitations.

For me the biggest drawback to I bonds if having to have them at TD. If I could buy them at my brokerage, I'd be all over them. I just don't want 2 more accounts.

Yeah, another account for the low limits isn't worth the bother for me.
Coming into a chunk of cash towards the end of the year and hoping interest rates are still high to lock up some bond ladders and then hope rates come down.

 

[-OZ-]

Yeah, another account for the low limits isn't worth the bother for me.
Coming into a chunk of cash towards the end of the year and hoping interest rates are still high to lock up some bond ladders and then hope rates come down.

I get that. Although I don’t really mind it, for funds I don’t intend to touch any time soon. I did cash out of Fundrise last year partly to simplify. But the one or two times I look at an account every year doesn’t bother me.

 

[SFBayDuck]

Also did a 529 and set up auto investing for it, and added to that when I had some extra. Now I'm at the point of making sure we get it all used for my Junior student. I barely drew down on it her first two years, but that's largely because she's gotten some grants and scholarships that I never know if she'll get each year, and I'm in tech sales so job security is always a potential issue. The good thing is they've added some more ways to use the funds the past few years. We have taken out some of the offered subsidized loans, some of which we've parked in a HYSA, and you can now use up to $10K to pay off loans. You can also roll over unused funds into a Roth.

Living in CA there were no state tax benefits to contributing. But now living in OR there is, so I've pulled out of the CA 529 each of the past couple of years and contributed to the OR to get that tax benefit. So be sure to check that in your state to see if any added benefit to the 529.

Quoting myself as I just uncovered today that while the feds allow Roth rollovers and student loan repayments from 529s, not all states have adopted this. In fact most states haven't, including the two states that I currently have 529 plans in. You can find details on what your state's plan does and doesn't allow here: https://thecollegeinvestor.com/529-plan-guide/

There are also state-specific rules on rollovers. It looks like I can do a rollover from both Oregon and California without penalties to another state. What I haven't found the answer on yet is if I can just roll $10K into a state that actually does allow student loan repayment and then disburse from there, anyone know?

There is also a once every 12-month rollover limit. So now I'm thinking I'll do a rollover from CA to OR in the next week or so of just enough to capture the OR tax credit for 2024 (OR does allow that, not all states count rollovers), and then possibly do another rollover of $10K in 2025 once 12 months has passed to a state that allows loan repayment, pending the answer to the above.

 

[Peggy]

I thought I knew a lot about this stuff, then every time I turn around I have more questions:

1 - To contribute the currently $8,000 per year to Roth IRA it has to come from earned income. If I retire and have zero income, but, my wife's small business pulls in $20,000 or so and we file taxes married jointly can I contribute the $8,000 or does the earned income need to be from the individual?

2 - Same as scenario above, my wife hadn't been able to do the backdoor Roth because of an existing traditional IRA. Once I retire we will be well under the income threshold so she can start contributing 8,000 directly to the Roth, no backdoor required?

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

 

[-OZ-]

I thought I knew a lot about this stuff, then every time I turn around I have more questions:

1 - To contribute the currently $8,000 per year to Roth IRA it has to come from earned income. If I retire and have zero income, but, my wife's small business pulls in $20,000 or so and we file taxes married jointly can I contribute the $8,000 or does the earned income need to be from the individual?

2 - Same as scenario above, my wife hadn't been able to do the backdoor Roth because of an existing traditional IRA. Once I retire we will be well under the income threshold so she can start contributing 8,000 directly to the Roth, no backdoor required?

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

1. “Spousal” IRA, you should be good although I’m not entirely sure what you mean by your wife’s small business pulls in $20k. Is that the same as her earned income?

2. Right. Although it’s not that you couldn’t back door before, the pro rata rule doesn’t prohibit it.

3. I think so. I don’t know why anyone would use a non deductible contribution unless it was to back door.

 

[Sand]

Quoting myself as I just uncovered today that while the feds allow Roth rollovers and student loan repayments from 529s, not all states have adopted this. In fact most states haven't, including the two states that I currently have 529 plans in. You can find details on what your state's plan does and doesn't allow here: https://thecollegeinvestor.com/529-plan-guide/

Thanks for this. I had no idea that this wasn't a universal thing. Luckily it looks like my plan (I picked an Alaska plan 20 years ago) does allow it and it looks like I'll have some left.

 

[Sand]

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

Over a long period this may make sense. At your age I think not - not enough time being tax free to overcome the tax penalty. Besides, it's best to have pots in all three types to be able to optimize withdrawals, etc.

 

[-OZ-]

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

Over a long period this may make sense. At your age I think not - not enough time being tax free to overcome the tax penalty. Besides, it's best to have pots in all three types to be able to optimize withdrawals, etc.

If they’re over the limit to deduct, what tax penalty is involved here?

 

[Sand]

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

Over a long period this may make sense. At your age I think not - not enough time being tax free to overcome the tax penalty. Besides, it's best to have pots in all three types to be able to optimize withdrawals, etc.

If they’re over the limit to deduct, what tax penalty is involved here?

Tax penalty as in putting in post tax monies then withdrawing and paying again. Not a discrete penalty. Sorry if not clear.

 

[-OZ-]

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

Over a long period this may make sense. At your age I think not - not enough time being tax free to overcome the tax penalty. Besides, it's best to have pots in all three types to be able to optimize withdrawals, etc.

If they’re over the limit to deduct, what tax penalty is involved here?

Tax penalty as in putting in post tax monies then withdrawing and paying again. Not a discrete penalty. Sorry if not clear.

Ah, I was looking at the question as just looking forward but that’s no longer an issue when he retires.

 

[Peggy]

I thought I knew a lot about this stuff, then every time I turn around I have more questions:

1 - To contribute the currently $8,000 per year to Roth IRA it has to come from earned income. If I retire and have zero income, but, my wife's small business pulls in $20,000 or so and we file taxes married jointly can I contribute the $8,000 or does the earned income need to be from the individual?

2 - Same as scenario above, my wife hadn't been able to do the backdoor Roth because of an existing traditional IRA. Once I retire we will be well under the income threshold so she can start contributing 8,000 directly to the Roth, no backdoor required?

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

1. “Spousal” IRA, you should be good although I’m not entirely sure what you mean by your wife’s small business pulls in $20k. Is that the same as her earned income?

2. Right. Although it’s not that you couldn’t back door before, the pro rata rule doesn’t prohibit it.

3. I think so. I don’t know why anyone would use a non deductible contribution unless it was to back door.

1- Yeah, for illustrative purposes just assume earned income for married filing jointly is 20K even though she earned it all. I think we are good, but if it were the other way around I suppose I could just have her put me on the payroll.
2 - Yep, got it.
3 - Because I usually don't learn until I make the mistake.

Just trying to get everything in my head to switch gears in retirement, living off cash and still trying to sock it away where I can.

3 - Before I retire we are above the threshold for IRA contributions to be deductible. Wife has been contributing to a traditional IRA. Wouldn't it make more sense to just invest that cash subject to capitol gains instead of paying income tax on it twice!?!?

Over a long period this may make sense. At your age I think not - not enough time being tax free to overcome the tax penalty. Besides, it's best to have pots in all three types to be able to optimize withdrawals, etc.

Sand just called me old!
lol

 

[Sand]

Sand just called me old!
lol

You mean your avatar isn't a selfie?

 

[Payne]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

 

[Instinctive]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

General consensus rings true to me too.

 

[ConstruxBoy]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

General consensus rings true to me too.

I think it really depends on the current and new 401k plans. A lot of 401k plans have higher fees and fewer fund choices than a Fidelity IRA. In fact, you almost always have to use Mutual Funds and not ETFs. But your existing plan or new plan might be pretty good.

 

[McBokonon]

I was planning on rolling old 401k into a Fidelity IRA

I’m probably not consensus. Assuming your 401K is traditional and you’ll be rolling to a traditional IRA, or ROTH to ROTH, that’s what I’d do. I wonder if some think you’re going Traditional to ROTH by the way you phrased it and that’s why the opposition?

 

[Peggy]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

If you're utilizing backdoor Roth, then you do not want to establish an IRA that has a balance. That's what most of us were saying.

If you don't use or will ever need to do a backdoor then it might be advantageous to roll it into an IRA for the reasons ConstruxBoy said. But I'd check with the bank that has the 401k first and see if they have a self directed brokerage option in the 401k. If they do you can avoid high fees and get better control of you investments just like putting it in an IRA would.

 

[Peggy]

@-OZ- @Sand Hang on. Unless I was misunderstanding you guys. I just read in one of my books about Nondeductable IRAs

- Taxes on capital gains, dividends and interest are deferred and due when you withdraw the money.
- Taxes are not due on your original contribution since these were made with "after tax" money.
- Warning: It requires extra book keeping and complexity when filing taxes.

So there still is an advantage to contributing to an IRA even your income is too high for it to be deductible. You could get 8k in each year in that defers all capital gains taxes on sales (div+int) unlike a taxable account, with the downside being the record keeping required to keep everything straight. Especially if you have a mixture of pre and post tax monies.

 

[Steve Tasker]

@-OZ- @Sand Hang on. Unless I was misunderstanding you guys. I just read in one of my books about Nondeductable IRAs

- Taxes on capital gains, dividends and interest are deferred and due when you withdraw the money.
- Taxes are not due on your original contribution since these were made with "after tax" money.
- Warning: It requires extra book keeping and complexity when filing taxes.

So there still is an advantage to contributing to an IRA even your income is too high for it to be deductible. You could get 8k in each year in that defers all capital gains taxes on sales (div+int) unlike a taxable account, with the downside being the record keeping required to keep everything straight. Especially if you have a mixture of pre and post tax monies.

From a tax perspective, I don't think this is as difficult as you're making it out to be. If you make a nondeductible traditional IRA contribution, you track your previously-taxed (i.e. the amount you contributed but couldn't deduct) cost basis on form 8606. When you take a distribution, a portion of the distribution gets applied to the cost basis, and a portion gets applied to taxable income. The computation is illustrated on the tax form - any tax software worth its salt will be able to handle these computations.

 

[Sand]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

Personally I disagree with 3. I think it is the best option, in general. Three caveats - what are the fees in the current 401k (or new 401k)? They usually suck compared to ETFs. Does the new 401k allow for partial withdrawals at 55 (if you need this money and will retire at 55)? What are the legal protections in your state between a 401k and IRA?

I place a large premium on that last one. I'd hate to be sued out of the IRA when it would have been safe in a 401k. If the fees suck, you don't expect to need that money at 55-59.5, and your IRA is legally protected I'd absolutely roll to Fidelity.

 

[-OZ-]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

Personally I disagree with 3. I think it is the best option, in general. Three caveats - what are the fees in the current 401k (or new 401k)? They usually suck compared to ETFs. Does the new 401k allow for partial withdrawals at 55 (if you need this money and will retire at 55)? What are the legal protections in your state between a 401k and IRA?

I place a large premium on that last one. I'd hate to be sued out of the IRA when it would have been safe in a 401k. If the fees suck, you don't expect to need that money at 55-59.5, and your IRA is legally protected I'd absolutely roll to Fidelity.

Agreed. There’s only a handful of states where the IRA is not protected. Even then, umbrella insurance usually takes care of that and is cheap. Of course you need to assess your own risk or discuss with a trusted advisor.

I rolled from TSP despite low fees into IRAs. Some wouldn’t do that but I’m not at risk of exceeding the Roth IRA limit for couples.

 

[-OZ-]

@-OZ- @Sand Hang on. Unless I was misunderstanding you guys. I just read in one of my books about Nondeductable IRAs

- Taxes on capital gains, dividends and interest are deferred and due when you withdraw the money.
- Taxes are not due on your original contribution since these were made with "after tax" money.
- Warning: It requires extra book keeping and complexity when filing taxes.

So there still is an advantage to contributing to an IRA even your income is too high for it to be deductible. You could get 8k in each year in that defers all capital gains taxes on sales (div+int) unlike a taxable account, with the downside being the record keeping required to keep everything straight. Especially if you have a mixture of pre and post tax monies.

Thanks. https://youtu.be/p15DIfTLUAY?si=ZATNsZAj9jS2gSzK

 

[Instinctive]

Ok, it has been a month since I asked my question about rolling over old company 401k.

From talking to people it seems the general consensus is to:
1) Keep my funds in current 401k
2) Transfer to new company 401k ONLY IF it is deemed an improvement over current 401k.
3) Rollover to IRA seems to be everyone's last resort.

This would go against what I was planning to do.

Again, I am 50. Have quite a large sum in current 401k.
Started new job and have yet to start new 401k.
I was planning on rolling old 401k into a Fidelity IRA where my Roth is held to make it easier for me to manage.

I have reached out to an advisor because I want to do what's right for me as I near retirement.
But, in the meantime, I was looking to see what those of you with far more knowledge think.

If you're utilizing backdoor Roth, then you do not want to establish an IRA that has a balance. That's what most of us were saying.

If you don't use or will ever need to do a backdoor then it might be advantageous to roll it into an IRA for the reasons ConstruxBoy said. But I'd check with the bank that has the 401k first and see if they have a self directed brokerage option in the 401k. If they do you can avoid high fees and get better control of you investments just like putting it in an IRA would.

Totally agree with this