Skip to comments.What To Do WIth My 401K
Posted on 11/08/2010 6:54:06 AM PST by alarm rider
I was wondering if some of you more informed business types could suggest the best way to handle my 401K?
I am due to retire in March, and I have received several opinions on what to do with the account. Is a IRA the best way to go, or is there something better.
I need to be able to draw money out should the need arise.
I thank you in advance for your input.
Liquidate it and buy a ranch in Uruguay.
Roll it over into to an IRA - you’ll have easier access to the funds that way.
Besides that, I am unable to tell you anything else because I know nothing about your circumstances - other than your retiring in March.
DEFINITELY roll it over into and IRA, because you can keep it tax deferred. Check with your plan and the financial institution where you planning to put it — the check needs to be made out to the financial institution “FBO your name” with account number, to make sure you don’t end up paying taxes at present. (FBO = “for beenfit of” — it should NOT be made out directly to you)
DO NOT, repeat DO NOT let anyone talk you into rolling it over into a Roth IRA, which would mean you would have to pay ALL the taxes on it immediately and you will never catch up — some unscrupulous financial advisors try to convince people to do this.
From an IRA you can withdraw any time without penalty (if you are over 59 and 1/2 year old) and you pay the taxes only on the amount you take out.
As for the financial institution, I highly recommend you roll it over to a LARGE institution, where there are many investment choices INSIDE your IRA. I am not recommending any one specifically, but something like Fideliy, Schwab are probably good candidates.
If you roll it over to a mutual fund company, it may sound good that you get no-load funds, but you can only invest in the funds offered by that particular company. Large firms, such as the ones I mentioned above, also have many no load funds as well from many mutual fund companies.
If your IRA is several hundred thousand dollars, it’s worth getting a financial advisor, who may charge you about 1% or so to manage your account, but if you are not investment savvy, they can keep you from making a serious and costly mistake.
Also, there is no rush to roll over your 401K, take your time to find the right institution and advisor (you can leave it with your company for a while even after you retire, though it’s a good idea in general to get it out and into an IRA, soon)
Find a good adviser before you jump in...
Rollover to a Rollover IRA account. Establish this account with a Financial Advisor or direct with a “do it yourself” firm: Fidelity, Janus, etc. This will allow you to chose investments to your liking/goals, and, more importantly, allow immediate access to your assets, if needed.
I rolled mine over into a Roth IRA.
I am sure there are other ways to go, but this is working out fine for my needs.
Rolled my wife’s 401K into a Roth. Principal wasn’t huge, so paying the tax over three years is no big shakes.
Bought her a 1/2 share unit in an oil/gas well (not particularly speculative; PUD field w/ existing producers). Pulling in a tidy check monthly, tax free; should be good for 8-12 years.
If I croak early, she and the kids will be comfortable.
A 401k fund is a "Tax Deferred" fund that you have in the business world instead of pensions. As a rule you have 3 choices with the 401k, you can take it as a payout, you can roll it into a Traditional IRA (T-IRA) or you can convert it into another instrument like a Roth IRA (R-IRA) or annuity.
Option 1 is your worst choice unless you have a STUPENDOUS SURE-FIRE IMMEDIATE use for your money. This is because you get your money AFTER a 20% haircut of your funds going to the IRS and then face the tax consequences of the funds upon your tax return.
Option 2 allows you to maintain the tax deferred status but you need to set up a "roll-over IRA" with a bank, credit union or investment firm. The money never touches your hands as it is directly deposited to that firm. This is ESSENTIAL in order to avoid that 20% IRS haircut. A T-IRA remains tax-sheltered until you start to withdraw money. You have to be 59.5 years old to withdraw without 10% penalty [special circumstances can mitigate]. The IRA can be self-managed even though it HAS TO BE A CUSTODIAL ACCOUNT but it also can be in a mutual fund etc where it is managed for the client. A 'feature' of a T-IRA is that when the holder gets to 70.5, there is a MINIMUM withdrawal (and tax burden) required EVERY YEAR.
Option 3 leads directly to getting personal financial advice because there are so many implications involved. A R-IRA has post tax dollars in it so if you convert a 401k into a Roth IRA, you pay all of the tax NOW. The good points are that under current tax law, it grows tax-free and all contributions can come out tax free while all earnings can also come out tax free after 5 years and after the owner is 59.5 in age. The annuity option is so variable that I won't say anything other than it is possible.
Hope that this free advice helps.
... having worked in the 401k field for 15 years, I don’t understand the reasoning for rolling to a ROTH since you have taxes due IMMEDIATELY (4/11). IF you are going to spend the proceeds in the next 7 years, then , yes Roth is an option with the strung out tax payment option. But if you are going to spend the IRA money last, roll it directly to Schwab/Fido and invest 100 cents of every dollar until you are over 70 and have to begin mandatory distributions at your lower tax/income rate after years of continued compounding growth. Both Schwab and Fidelity are offering FREE ETF lineups which will give you easy, diversified investment options and they both have managed asset programs with advisors who are not commission driven for those who want help with advice.
Buy weapons and lots of ammunition! < /sarc >
Interesting. How does one go about that arrangement?
bump for later
It did help,and I thank you and everyone for your information.
I have much to think about between now and the end of February.