I am 66 and have been retired for over two years. Then I would evaluate your situation to see if you can lower your federal tax bracket. Does anyone know? That will help to give you investment diversification, and in the case of the Roth, income tax diversification. I would appreciate your comments on this Jeff. How much in taxes do you figure I would have to pay Uncle Sam when I next file my return? I am going to take mine asap before its gone. If you are hoping to get a signup bonus for opening an online stock broker account, you should definitely explore all of your options. Every little bit helps like you mentioned even a 20,50, or 100$ is a lot when you are in the early stages. I have heard from a couple of people that you can divide the taxable amount over 2 years, is this true? It may be to your benefit, but then it might not. You can’t afford to make a mistake on this. Is there a windfall tax even if you wait to the non penalty age? @Jeff Rose- Thanks for your feedback! If you plan to earn lots of money in the future – or earn a high income now – you should consider rolling your funds into a Roth IRA instead of a traditional IRA. taking it out an paying tax now will be about equal to letting it ride=unless I throw i state tax which doesn’t recognize long term gains. I would like to start converting $6500 of my 401k to my Roth every year for the rest of my employment so I can start paying taxes on the pre-taxed 401K funds and move the funds trustee to trustee. Since you are over 59.5, you won’t have to pay the 10% penalty on early withdrawals. The latest news and commentary on workplace and employment. Opinions expressed herein are solely those of AWM, unless otherwise specifically cited. I am currently a graduate student and I have $25000 in old (last employer) 401k retirement. Factors to include: your age, your expected investment return within the Roth IRA, your view on future tax rates, when you actually retire, etc. That’s your balance minus 10% for the withdrawal penalty and 20% to cover federal income taxes (depending on your tax bracket, you may owe more or less when you file your return). The money that you contribute to your 401k is not subject to income tax, so it will be advantageous for you to contribute the entire $18,000/yr if possible. That’ll take away the temptation entirely. Note – even if the 401(k) offered a Roth 401(k) side for conversions, the ‘recharacterization’ is not available. My wife also has an old Roth IRA. I meant to say “transfer to a traditional IRA in order to avoid paying taxes now”. However, I still have funds in the old 401k. Jeff – Thanks for the information. I did it specifically because I needed to owe more money in 2017 in order to take advantage of a tax credit. Appreciate the help!!! If you were to convert into a Roth IRA, you would typically have a 5 year waiting period before you could touch the principle (the amount you converted). No worries, I will! I know bankruptcy is a terrible word to many people, but there are certain circumstances where it makes sense, and can break you from a cycle of unending struggle. If I can convert to a Roth, can I then withdraw the funds? That’s what I’d do. Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. If that doesn’t work, you’ll need to talk to an accountant to review your taxes and see what might be done to lower your tax liability elsewhere. Roll into an IRA. Give it a few months of supervised parental driving first. So waiting till January puts the tax bill on a $46,250 withdrawal at $4,991, vs the $11,500 you’d pay this year. That is correct, your gross income will be the $159k; same goes for your assumption for the next year. On whatever paperwork you sign for the direct rollover, check “no tax withheld.”. Sipping prune juice by the beach? I do realize that I will have to pay income tax on that money, but since I am a student and have no income it will be best time to do it. I RECENTLY FOUND OUT I HAVE BREAST CANCER & NEED TO HAVE EMERGENCY SURGERY SO I TRIED TO GET A HARDSHIP LOAN FROM MY 401K & IT WOULD NOT LET ME EVEN AFTER I PROVIDED ALL NECESSARY DOCUMENTATION! If not, I still cannot contribute to the Roth going forward, correct? Hi Tony – In theory it sounds right, since you’re terminating the 401(k). General Disclaimer: See the online credit card application for details about terms and conditions. TD Ameritrade recently bought out the brokerage Scottrade. But they still get to make money after having your money to play with for a year plus penalties and you still come out on top. I have two questions: 1.) I would like to do this to have more control over how the money is invested and to get started on the 5 year waiting period before I could withdraw from it. Comments may be held for moderation and will be published according to our. What are the rules on withdrawals from the Roth IRA once you’ve rolled over a Roth 401(k)/403(b) into it? Hi Emily – The contribution portion is available penalty/tax free after five years, but any portion representing investment earnings is subject to both tax and penalty if taken prior to 59.5, even if you’ve been in the plan for five years. I was foolish enough to put money into a 401K at my previous job and let them manage it. Please be very careful! Technically, yes. I am aware of penalties and taxes but how would I do it? Additionally I have 401k ($21,000) with my former employer. However, a lot of people have been asking about another option lately – and that’s whether you can roll your 401(k) over into a Roth IRA instead. You have until the last filing date of the tax year of the conversion to do it, so please move quickly. Hmmmm…. I have seen so many young to middle aged people faced with financial dis pare that they are comparing 401k cash outs vs. 401k loans and they never really learned how to properly monitor your 401k account to begin with. Thanks. Great question. I became 70 years old this January, although I retired in 2008 I still have a 457 Retirement Account. You can trust the integrity of our balanced, independent financial advice. Can I contribute 5000 limit in addition to this rollover to this Roth IRA? One of my top picks for online trading is E*TRADE. If that is not an option, then I would contribute to a roth-ira. If you still plan to work in the future then consider a Rollover IRA. With respect David, I disagree completely. Years old.? What you’re experiencing is a “dirty little secret” of 401k loans that almost never gets discussed. Do you know what kind of tax write offs I get every year on my properties? You can avoid the tax by keeping the money in the 401k. I still have an employer 401-k with a value of around $308,000. Hi, Jeff. 2 . Assume a buck in the 401k will double in 5 years? Thanks for your input! In Jan 2014 you start from zero income, and have a standard deduction and exemption adding to $10,000. QUESTIONS REGARDING 5 YEAR RULES – Does rolling the Roth 401K to a new Roth IRA restart the 5 year clock (to qualify for a tax-free distribution of earnings)? And why both the software’s are considering this transaction differently? When it comes to complex investment vehicles and taxes, what you don’t know can hurt you. But if it’s any comfort, most people don’t know this, and fall victim to it. There’s a 10 percent penalty on any money you take out of a retirement account before age 59 1/2. Once I started doing this, I basically told my new job when I was applying that I wanted to be able to break my 401k every year or every other year, and that that was what I was going to be doing. Will be adopting again next year and might need little extra cash too. Most administrators issue a check to make distributions from 401(k) and they are often sent to the participant. ), Wait 365 days for the next rollover: Yes, the rule is one conversion per 12 month period. It makes sense to go with the Roth. Glad someone knows how this stuff works!!! Here’s a piece of advice for people who do cash it out. It’s a little unclear to me if you’re saying I could roll this (or a portion) into a Roth IRA now even while I’m still working (and contributing). I am no longer employed with the company. Stated we could call back after we are under a foreclosure. Can I roll part of it (100k) into a Roth and the remainder into a traditional IRA, I will use outside funds to pay the tax on the $100k rolled to the Roth. iam 27 yrs old have a second baby and quit my job cause i couldent afford daycare. Important to note that hardship distributions are only available if the plan document specifically allows it, and many don’t. There will be no tax on the conversion, but there will be tax on the income distributions that you later take. I need some some help in deciding whether to go Roth or tax deferred 403(b) and 457 plan. Editor’s note: This article was originally published in January 2013. I’m fine with paying the 10% fee and the taxes. The 401 money will keep us from any foreclosure and will assists us in paying off our house and vehicles to keep from any collectors. Then you can do a Roth conversion directly from the 401k. 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