IRA, Roth, Traditional, Other?
Have opportunity to roll my current 401k over to Traditional, or Roth IRA..
Age 57, M, Single, Income around 40k
Current 401k bal is only around 22k
My bank is Chase, and am considering them for the IRA, but I am open to other suggestions, of course.
May have a chance to purchase home I am renting, and might need to draw from IRA in the next year or two, as a supplement to
down payment on home.. That is uncertain, however.
Thanks so much, any educated input would be appreciated.
Permalink Submitted by Alan - IRA critic on Wed, 2019-03-13 18:03
This must be an old 401k from former employer? Or is it the plan of your current employer and only part of it is eligible for distribution? Any rollover should probably go to a traditional IRA, but if you separated from former or current employer in the year you reached 55 or later, you might be better of leaving that plan in place since any distributions will be penalty free. Otherwise, to avoid a 10% penalty you would have to wait until 59.5, although from an IRA if your home purchase met the requirements of a first home for you, then up to 10,000 can be distributed from an IRA at any age without the penalty. Therefore, you have several options how to proceed and how to avoid the early distribution penalty before age 59.5. Big banks are not the best place for your retirement funds as they will probably try to sell you an annuity, or put you in a non competitive CD. The usual best options are Vanguard, Fidelity or Schwab for IRA brokerage accounts. There are almost unlimited low cost investment options. From a traditional IRA you can convert to a Roth IRA, but that is only beneficial if your marginal tax rate is quite low. That would likely be after you retire, and after you carefully determine the best choice between converting and not converting.
Permalink Submitted by Daniel Clark on Wed, 2019-03-13 20:53
Hello, and thank you for your valuable information.Current employer is selling business, and not long ago, he changed the 401k plan, to a plan that did not provide for 1st home buyer distribution.. That bothered me, especially as he did not let any employees know of that specific difference! He probably violated some regulations, but either way, he is now terminating the plan as he is selling the company, so this is my cue to move my funds, experiencing what I assume would be no penalties, and no fees.(?) New company owner may be offering 401k, I don’t know yet. Old plan was up to 3% of gross pay matched contribution by former company owner. IRA of one kind or the other just seems a better long-term choice, from all I hear and read. However, if new owner is going to offer a percentage, and the plan will allow 10k disbursement for first home, should I maybe stay with that(?) Oh, I am pretty sure that I will order, today, Ed’s $72 donation gift thru PBS.. Seems like a smart thing for me at this point.. would u have an opinion?Thank you again, so much. Dan
Permalink Submitted by Alan - IRA critic on Wed, 2019-03-13 21:33
If the company buyer is a larger firm, there is a good chance that the retirement plan will be a 401k. Only IRA plans like the one you formerly had provide the 10,000 first home penalty exception. However, a 401k plan will provide a far better penalty exception – when you separate at age 55 or later distributions from the plan are penalty free without limit and without any requirement for using the funds. A new plan might accept a rollover of your current 401k balance, making that entire balance penalty free once you retire or separate for any reason. A 401k is generally a better quality retirement plan than an IRA, but you will have to wait and see what happens with the company sale, your position, the new plan offered, and if the current 401k balance can be transferred to the new plan. However, if the old plan is terminated and you are allowed a distribution, you are already 55 so you might qualify for penalty free distributions from the old 401k under “severance from employment” due to the sale. The end result depends on a combination of how the sale is done, how much of the assets are acquired and other factors. In short, once it is clear what you can do with the current 401k plan, you can then decide. Right now, too much is still up in the air.
Permalink Submitted by Daniel Clark on Wed, 2019-03-13 22:30
Excellent, Thank You So Much, will hold this advice in mind, and will be learning more on orientation / ‘new’ hire day, March 19. Thanks again. dan