401k and IRA question.
marck...@yahoo.com
before getting laid off. Good start for retirement savings, huh!?
Now that I am doing my 2007 taxes and would like to invest 4k into an
IRA. So here are a few questions that I can't seem to get answered
from what I have read, and forgive me for my ignorance but investing
is fairly new to me so perhaps in laymen terms would be best.
What is the best way to rollover my 401k into an IRA or a Roth IRA if
possible? I understand that there is a direct rollover plan but I am
unsure if I can use this to rollover in an IRA and Roth IRA. And what
about the fact I started this 401k this year in January, does that
matter?
Also is it common to see in ones portfolio an IRA and Roth IRA? I am
thinking about doing this because I don't know if I would want the tax
deferred or exempt; which seems to me it's like having one foot on ice
and the other on fire.
Thanks.
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Default User
> What is the best way to rollover my 401k into an IRA or a Roth IRA if
> possible? I understand that there is a direct rollover plan but I am
> unsure if I can use this to rollover in an IRA and Roth IRA. And what
> about the fact I started this 401k this year in January, does that
> matter?
You can only roll over a 401(k) after you leave a job. It sounds like
you're still with that company.
> Also is it common to see in ones portfolio an IRA and Roth IRA? I am
> thinking about doing this because I don't know if I would want the tax
> deferred or exempt; which seems to me it's like having one foot on ice
> and the other on fire.
Would a traditional IRA be deductible for you? If not, then it's no
question, the Roth would be better.
Brian
--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)
BreadW...@fractious.net
> Hello, I have invested in my first 401k for one month (January 2008)
> before getting laid off. Good start for retirement savings, huh!?
> Now that I am doing my 2007 taxes and would like to invest 4k into an
> IRA. So here are a few questions that I can't seem to get answered
Did you make any IRA contributions in 2007 already (for tax-year
2007)? (since it was possible to make a contribution in 2007
for tax-year 2006). If not, you may still make a 2007 contribution.
Were you working someplace in 2007 where
you had access to an employer-sponsored plan (ie. 401k)?
If not, then that 2007 contribution may be deductible on
your 2007 income taxes. Or you may be able to make a 2007
Roth contribution (very likely a better idea, especially
if your tax bracket in 2007 was low). But bear in mind
that you have to have earned money in 2007. Did you?
> What is the best way to rollover my 401k into an IRA or a Roth IRA if
> possible? I understand that there is a direct rollover plan but I am
If you're no longer with that company where you made that 401k
contribution, you may roll that money over into an IRA, or
into a Roth IRA, though if you roll into a Roth, you'll have
to pay taxes (2008 taxes - not due for a year) on that money.
> Also is it common to see in ones portfolio an IRA and Roth IRA? I am
Sure - why not? There are times when one is eligible to put
money into one but not the other.
> thinking about doing this because I don't know if I would want the tax
> deferred or exempt; which seems to me it's like having one foot on ice
> and the other on fire.
That's actually a risk-lowering move we call "tax diversification"
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
joetaxpayer
> Hello, I have invested in my first 401k for one month (January 2008)
> before getting laid off. Good start for retirement savings, huh!?
> Now that I am doing my 2007 taxes and would like to invest 4k into an
> IRA. So here are a few questions that I can't seem to get answered
> from what I have read, and forgive me for my ignorance but investing
> is fairly new to me so perhaps in laymen terms would be best.
> What is the best way to rollover my 401k into an IRA or a Roth IRA if
> possible? I understand that there is a direct rollover plan but I am
> unsure if I can use this to rollover in an IRA and Roth IRA. And what
> about the fact I started this 401k this year in January, does that
> matter?
> Also is it common to see in ones portfolio an IRA and Roth IRA? I am
> thinking about doing this because I don't know if I would want the tax
> deferred or exempt; which seems to me it's like having one foot on ice
> and the other on fire.
You have two things going on;
If you had earned income in 2007, you may deposit the $4,000 into an
IRA. How much did you earn in 2007? Do you think you will find a new job
in 2008? I suggest the deductible IRA for 2007, and request a direct
transfer of the 401(k) money into that account this year.
My opinion on Roth is that people earning low incomes (15% Federal
bracket or lower) may be better off with a Roth, others should convert
based on changes in bracket. Maybe you were in the 25% bracket in 07.
$4000 will get you back $1000 in taxes. In 08, if you are not employed a
few months, you may be in the 15% bracket. You convert and pay $600 in
tax. You are ahead $400. This is a simple example, but should help
illustrate my thoughts. If you have any follow on questions, come back.
Those here are kind, knowledgeable, and wish to help.
PeterL
> Hello, I have invested in my first 401k for one month (January 2008)
> before getting laid off. Good start for retirement savings, huh!?
> Now that I am doing my 2007 taxes and would like to invest 4k into an
> IRA. So here are a few questions that I can't seem to get answered
> from what I have read, and forgive me for my ignorance but investing
> is fairly new to me so perhaps in laymen terms would be best.
> What is the best way to rollover my 401k into an IRA or a Roth IRA if
> possible? I understand that there is a direct rollover plan but I am
> unsure if I can use this to rollover in an IRA and Roth IRA. And what
> about the fact I started this 401k this year in January, does that
> matter?
> Also is it common to see in ones portfolio an IRA and Roth IRA? I am
> thinking about doing this because I don't know if I would want the tax
> deferred or exempt; which seems to me it's like having one foot on ice
> and the other on fire.
>
> Thanks.
>
Many brokerage will help you set up a rollover IRA, easy piecey. Try
Fidelity or Schwab. I rolled my 401K into a rollover IRA acct at
Fidelity. You can have many combinations of IRA and Roth IRA in your
portfolio.
I hope you find a job real soon, if not already.
Elizabeth Richardson
"joetaxpayer" <joeta...@nospam.com> wrote in message
news:wOadneJLeol5p0Xa...@comcast.com...
> marck...@yahoo.com wrote:
>
>
> You have two things going on;
> If you had earned income in 2007, you may deposit the $4,000 into an IRA.
> How much did you earn in 2007?
Doesn't the IRA have to be established by 12/31/07 to make 2007
contributions?
Elizabeth Richardson
Default User
>
> "joetaxpayer" <joeta...@nospam.com> wrote in message
> news:wOadneJLeol5p0Xa...@comcast.com...
> > marck...@yahoo.com wrote:
> >
> >
> > You have two things going on;
> > If you had earned income in 2007, you may deposit the $4,000 into
> > an IRA. How much did you earn in 2007?
>
> Doesn't the IRA have to be established by 12/31/07 to make 2007
> contributions?
No, basically tax day.
Brian
--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)
--------------------------------------
joetaxpayer
Elizabeth Richardson wrote:
> "joetaxpayer" <joeta...@nospam.com> wrote in message
> news:wOadneJLeol5p0Xa...@comcast.com...
>
>>marck...@yahoo.com wrote:
>>
>>
>>You have two things going on;
>>If you had earned income in 2007, you may deposit the $4,000 into an IRA.
>>How much did you earn in 2007?
>
>
> Doesn't the IRA have to be established by 12/31/07 to make 2007
> contributions?
>
> Elizabeth Richardson
No, there are some plans that do require that, but IRA has tax day
deadline, whenever it falls.
Joe
Elizabeth Richardson
>
>
> No, there are some plans that do require that, but IRA has tax day
> deadline, whenever it falls.
Ok, maybe they've changed it. It used to be that to make a 2007 contribution
in 2008, you had to have established the account by 12/31/07. You couldn't
open an account in 2008 and fund it for 2007 (or 2006, or some other prior
year). I know that for an already established account you can back fund it.
Elizabeth Richardson
joetaxpayer
Elizabeth Richardson wrote:
> "joetaxpayer" <joeta...@nospam.com> wrote in message
> news:YbmdnR5mjbwU_0Xa...@comcast.com...
>
>>
>>No, there are some plans that do require that, but IRA has tax day
>>deadline, whenever it falls.
>
>
> Ok, maybe they've changed it. It used to be that to make a 2007 contribution
> in 2008, you had to have established the account by 12/31/07. You couldn't
> open an account in 2008 and fund it for 2007 (or 2006, or some other prior
> year). I know that for an already established account you can back fund it.
Well, I just searched a bit, and found that a Self-Employed 401(k) has a
deadline to open by 12/31. And Roth conversions must happen by 12/31 as
well. And RMDs for IRAs.
Here's my question back to you - will a broker open a zero balance IRA?
There are those who, even by 12/31, don't know if they can deduct the
IRA, and are inclined to wait till March to open one, or deposit to a
new one. I guess once the account is open, this discussion is moot
beyond that point. If nothing else, this continues to prove my point,
"too many retirement accounts, too many rules."
Joe
Elizabeth Richardson
>
> Here's my question back to you - will a broker open a zero balance IRA?
I don't know about brokers - don't have any use for them. I know the big
mutual fund houses will, and if you're just starting out investing, you
probably shouldn't be buying individual issues anyway.
Elizabeth Richardson
marck...@yahoo.com
@joetaxpayer:
To clarify let me state this first, for 2007 tax year I was in the 25%
tax bracket and I am assuming I will be employed soon.
You mentioned that if I was unemployed for some time during 2008 and
fell in the lower 15% tax bracket I would, "... convert and pay $600 in
tax. You are ahead $400." Can you elaborate that example? I am not
sure what I would be converting.
Also a "deductible IRA" is that a traditional IRA?
jIM
Joe is giving you excellent advice.
To elaborate- the 401k and IRA are seperate entities (I think you knew
that).
The IRA could be either traditional deductable IRA, a traditional non
deductable IRA or a Roth IRA.
If you are in 25% tax bracket and eligible for the deductable, Joe's
advice was to do that.
If you are in 15% tax bracket and eligible for the Roth Joe's advice
was to do that.
unless I misinterpreted his advice.
In general, opt for the Roth over a traditional non deductable IRA.
Rollover- a rollover IRA just keeps the tax deferred status of the
401k. It does not affect the status directly for any of the above.
I have a Roth and a rollover. Both with around 50k in them. It is
OK. I might choose to convert the Rollover to a Roth a little bit at
a time as part of tax planning each year, but that is not important to
this discussion.
Joe did mention doing a rollover to Roth conversion as tax and
investment planning going forward. Good advice, I would start simple.
Look at what taxable income is on the tax return- this established tax
bracket. Depending on if you are married or single will affect what
rate is applied to that taxable income.
rick++
> Hello, I have invested in my first 401k for one month (January 2008)
> before getting laid off.
The 401K adminstrator may force you to rollover the 410K if the amount
is
too small. Saves them adminstration overhead.
> Also is it common to see in ones portfolio an IRA and Roth IRA?
Yes. But that is often due to income eligibility constraints. In
good years
you may not qualify for the a Roth.
Furthermore, because you were covered by an employer's retirement
plan for at least one day in 2008, an IRA is not deductable if you
make
more than $62,000. A Roth has a higher limit.
Default User
>
> "joetaxpayer" <joeta...@nospam.com> wrote in message
> news:YbmdnR5mjbwU_0Xa...@comcast.com...
> >
> >
> > No, there are some plans that do require that, but IRA has tax day
> > deadline, whenever it falls.
>
> Ok, maybe they've changed it. It used to be that to make a 2007
> contribution in 2008, you had to have established the account by
> 12/31/07. You couldn't open an account in 2008 and fund it for 2007
> (or 2006, or some other prior year). I know that for an already
> established account you can back fund it.
I opened a new Roth and funded for the prior year and that year back
around 2002 or so.
Brian
--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)
--------------------------------------
jIM
> Thanks everyone for the replies; my questions got answered.
>
> @joetaxpayer:
> To clarify let me state this first, for 2007 tax year I was in the 25%
> tax bracket and I am assuming I will be employed soon.
>
> You mentioned that if I was unemployed for some time during 2008 and
> fell in the lower 15% tax bracket I would, "... convert and pay $600 in
> tax. You are ahead $400." Can you elaborate that example? I am not
> sure what I would be converting.
>
> Also a "deductible IRA" is that a traditional IRA?
>
> Thanks.
A traditional IRA may or may not be deductable. In order to be
deductable you must be under certain income and meet other
requirements.
see pub 590 from IRS
http://www.irs.gov/publications/p590/ch01.html#d0e825
and read "what new in 2007" which is quoted in my reply to another
poster on this thread below.
jIM
> On Mar 12, 12:32 pm, marckas...@yahoo.com wrote:
>
> > Hello, I have invested in my first 401k for one month (January 2008)
> > before getting laid off.
>
> The 401K adminstrator may force you to rollover the 410K if the amount
> is
> too small. Saves them adminstration overhead.
>
> > Also is it common to see in ones portfolio an IRA and Roth IRA?
>
> Yes. But that is often due to income eligibility constraints. In
> good years
> you may not qualify for the a Roth.
>
> Furthermore, because you were covered by an employer's retirement
> plan for at least one day in 2008, an IRA is not deductable if you
> make
> more than $62,000. A Roth has a higher limit.
>
Check IRA rules on this- there was a change for tax year 2007. An IRA
can be deductable if AGI is under ~103k.
>From pub 590:
"Modified AGI limit for traditional IRA contributions increased. For
2007, if you are covered by a retirement plan at work, your deduction
for contributions to a traditional IRA is reduced (phased out) if your
modified AGI is:
More than $83,000 but less than $103,000 for a married couple filing a
joint return or a qualifying widow(er),
More than $52,000 but less than $62,000 for a single individual or
head of household, or
Less than $10,000 for a married individual filing a separate return."
marck...@yahoo.com
I am a little confused about when the term "rollover" is used in the
context of an IRA. The term seems to be used as verb and a noun. For
instance, if money is rolled over into a traditional IRA account,
would this account now be considered a "rollover IRA account"? Or
would the account still be considered an IRA account that tax deferred
money (from a 401k) got "rolled over" into it?
Also PeterL mentioned about rolling over a 401k into a rollover IRA in
this thread thru Fidelity, which I also have mine in. But he never
mentioned that if this was a direct
transfer. If it wasn't a direct transfer what risk or loss if any
resulted?
jIM
> Thanks for the replies, its helpful!
>
> I am a little confused about when the term "rollover" is used in the
> context of an IRA. The term seems to be used as verb and a noun. For
> instance, if money is rolled over into a traditional IRA account,
> would this account now be considered a "rollover IRA account"?
> Or
> would the account still be considered an IRA account that tax deferred
> money (from a 401k) got "rolled over" into it?
YES, but first phrasing is more common way to communicate where IRA
came from.
> Also PeterL mentioned about rolling over a 401k into a rollover IRA in
> this thread thru Fidelity, which I also have mine in. But he never
> mentioned that if this was a direct
> transfer. If it wasn't a direct transfer what risk or loss if any
> resulted?
The question "what risk or loss resulted" confuses me.
The 401k account balance gets frozen the day the rollover application
arrives. That amount is then transferred to Fidelity. Once at
Fidelity it will be invested the way you instructed fidelity to
invest.
The risks taken will be a function of the investments chosen.
Rich Carreiro
> I am a little confused about when the term "rollover" is used in the
> context of an IRA. The term seems to be used as verb and a noun. For
> instance, if money is rolled over into a traditional IRA account,
> would this account now be considered a "rollover IRA account"? Or
> would the account still be considered an IRA account that tax deferred
> money (from a 401k) got "rolled over" into it?
Yes to both :).
--
Rich Carreiro rlc-...@rlcarr.com
joetaxpayer
> Thanks everyone for the replies; my questions got answered.
>
> @joetaxpayer:
> To clarify let me state this first, for 2007 tax year I was in the 25%
> tax bracket and I am assuming I will be employed soon.
>
> You mentioned that if I was unemployed for some time during 2008 and
> fell in the lower 15% tax bracket I would, "... convert and pay $600 in
> tax. You are ahead $400." Can you elaborate that example? I am not
> sure what I would be converting.
>
> Also a "deductible IRA" is that a traditional IRA?
>
> Thanks.
(sorry for the delay - I was away)
A traditional IRA may be deductible, based on participation in other
company plans, and income.
A roth has its own income restrictions.
jIM got it right as far as my approach goes:
If in 15% bracket, go Roth. If higher, go deductible IRA.
If usually in higher, (than 15%) but in 'this' year back in 15% or
lower, you may 'convert' traditional IRA money to a Roth, and pay the tax.
In the example you quote above, I propose this (if I understood your
situation); In 2007 make a traditional IRA deposit. You get $1000 tax
break on the $4000 deposit. In 2008, convert it (at 15% if that's your
bracket this year) and pay $600 in tax. This approach works great for
those who have any disruption in income, lob loss, spouse out for
newborn, etc. I'm sure I could go on about it, with more words and
examples, but I think this is pretty clear. (follow up questions are
still free)
JOE