Investing 104 - 401K Rollover - Dividend Stocks & Portfolios wanted

[XLexusTech]

If you are within the income limits consider a Roth conversion..

[NOVA]

Originally Posted by XLexusTech

If you are within the income limits consider a Roth conversion..

Schwab suggests to do a regular IRA or I will start paying taxes (now) if I do a roth IRA rollover, at least thats the way I understood it, they say why pay tax now? .... maybe I am misunderstanding

[ErikLS2]

If you convert it to a Roth you will have to put the amount you convert on your tax return as income for the year you do the conversion (since it was never taxed) and then be able to pay the tax on it either by reducing your refund or increasing what you owe. If you use money from the account being converted to pay this tax that's considered a distribution from that account and therefore subject to not only regular income tax but the early withdrawal penalty. Once it's converted though it grows tax free from that point on.

Basically would you rather pay tax on the balance in the account now at your current rates (if you're able to do so) or pay tax on the withdrawals as you take them out (presumably a much larger sum by then) at whatever rate you're paying at that time, usually a lower one for most people. Who knows what tax rates will be then though.

Oh, and I'm no accountant or anything. I've just done one of these conversions and I believe this is all true. Some things might have changed though but Schwab will know.

[GregWeld]

There is a lot of MATH that needs to be done BEFORE you do any conversions... and - frankly - it needs to be done with an accountant. Your tax bracket - all the limitations - etc need to be worked out.

If it works out -- you have to pay the taxes due OUT OF POCKET not from the 401 funds.... so it's an extra expense.

The big key to the whole thing is the NON TAXABLE WITHDRAWALS upon retirement. That can be huge... but all this needs some serious math and thought.

To me -- the key is just to save as much as you possibly can in the 401 AND contribute to a ROTH as well... and so what if you pay some minimal taxes once you're retired? That's the whole key is that you should be in a lower or minimal tax bracket once retired.

[NOVA]

Thanks Guy's, I did speak with a F.A (fee only) and this is what he thought made the most sense (specially from a tax standpoint) moving it into my new 401K for now, its Vanguard based, I have about 25 funds to pick from - the nice thing is I can move it any time if I want to into a traditional IRA at Schwab if I change my mind or plan, I can move some or all.

My goal is to retire early and if I choose to leave it in my new 401k until I am 59 1/2 it made the most sense from a tax standpoint he asked the questions I told him my goal, he said knowing the flexibility (which he had me call my new 401K / Vanguard to get some clarifications) with my new plan, if I did want to move it to Schwab, still can, no problem or penalites as long as I move it directly to a IRA @ Schwab, if I change my goal or plan I can move it, I know there isnt as much flexibility but when I explained to him what I wanted to do or at least shoot for (59 1/2) this was what makes the most sense, I can always move a portion too.

As stated earlier it does boil down to a tax deal, no way around paying any tax, it will happen regardless, but in my case,if I choose to leave it in there,ride it out until I am 59 1/2 the tax situation is the best case scenerio.

Both F.A and accountant both recommend I do not convert it to a ROTH in my case, again this is based on my situation, I am sure there are some that will see it differently but your situation may be slightly different which changes everything.

I am going to think it all over the long weekend, this is my first time moving a 401k and you are right it takes figuring out.

Oh btw my 401k is a traditional 401k and would be rolling it into another traditional 401k.

Thanks for the feedback.

[GregWeld]

Every individuals circumstances are DIFFERENT... and decision must be based on their circumstances. That's why I always refer people to their accountant or tax professional! You have to do the math... and that math either works or doesn't.


There's nothing wrong with Vanguard as long as you have some choices - then you just need to research all they have to offer and pick the best ones they have.

Sounds to me like you've made a good educated inquiry with the right people and you've made a good decision based on that input. Not much more a guy can do than that!

[NOVA]

Originally Posted by GregWeld

Every individuals circumstances are DIFFERENT... and decision must be based on their circumstances. That's why I always refer people to their accountant or tax professional! You have to do the math... and that math either works or doesn't.


There's nothing wrong with Vanguard as long as you have some choices - then you just need to research all they have to offer and pick the best ones they have.

Sounds to me like you've made a good educated inquiry with the right people and you've made a good decision based on that input. Not much more a guy can do than that!

Thank you Greg, I appreciate your input