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It is currently Tue Jul 22, 2014 6:09 pm




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 Post subject: Keep 401K or rollover to Roth IRA
PostPosted: Wed Aug 22, 2012 6:19 am 

Joined: Wed Aug 22, 2012 6:01 am
Posts: 1
Here's the skinny:

I am currently a mostly stay-at-home-mom since the first bubble burst in August 2007. I work for a small business, there are 8 of us. I wasn't planning on being home after maternity leave but it made more financial sense for me to stay home as full-time child care in my area is equivalent to a monthly mortgage. So my husband works and with over-time picks up the slack.

Work does occcasionally trickle in for me, I am essentially a per diem consultant for the firm I work for. Our work is heavily dependent on federal, state and municipal infrastructure type projects, which in the past was steady and reliable...well we all know that isn't true anymore.
We do have a company 401K, which my boss used to match our contributions, she hasn't matched since 2008. I had the max contribution to match her matching %, I adjusted that down a little to have a little more needed take home pay. I have contributed only from paychecks since 2008. We do okay, could be doing better, we are 18 months from being debt-free not including my mortgage and remaining student loan.

Also to note, currently considering leaving this firm altogether if I can't be guarenteed 1 paid day a week. I am in the works of changing careers altogether but that is going to take a couple of years and this job, while infrequent, pays pretty well and gives me a lot of flexibility.

Should I rollover my work 401K to a Roth IRA seeing that we don't even have a matching program and it is just sitting there because I haven't contributed very much. Would my money, which isn't very much but better than nothing, be put to better use in a Roth IRA? I know there are max. contributions to Roth IRAs, are there minimums? If I do rollover, what should my expectations be as far as cost to rollover? Any advice on where to do that; I do not have thousands to put in a place like Vanguard, even though I would like to? My local credit union, e*Trade, Sharebuilder, a local bank?

Sorry for all the questions layered in there.


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 Post subject: Re: Keep 401K or rollover to Roth IRA
PostPosted: Wed Aug 22, 2012 7:24 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
First off, the general consensus is your money, especially if you are young, is much better served in a Roth IRA than 401k. 401k plans are employer sponsored, and to cut costs they let a company administer it for very little cost to the employer in exchange for gouging the employees on fees. Generally speaking. You can do a search on the interwebz about how sensitive your overall return will be to fees. (psst...low fees help tremendously).

The next problem you are facing is if you can roll the 401k over to an IRA at all. You will have to see if the plan allows you to do while being employed (at the capacity you are, part time). Since you are allowed to contribute, my assumption is you are treated just as any other employee. And if the plan doesn't allow you to rollover while employed, well, you'll have to terminate your employment to be able to roll this over. Or perhaps, you can negotiate becoming a contract employee with an hourly or daily rate. It will look like you get paid more on paper, but you'll have to pay additional taxes. But, this will terminate your employment and you will be able to rollover your 401k. You'll also be free to pick up other jobs as well...

Next, if you can rollover your 401k, it will rollover into a rollover IRA. This is very similar to a traditional IRA. You can then convert your rollover IRA to a Roth IRA. You will have to pay taxes on this amount, the following spring, at your marginal tax rate. You can convert part, you can convert it all, you can convert none. You can also convert parts of it over various years. Whether you should do this depends on your income, tax filing status, marginal tax rate, assumptions about the future, and goals.

The big thing is to find out if your 401k plan allows you to rollover to an IRA while still employed. You'll need the plan's SPD (summary plan description) which they are legally required to give you. That is where you should start.

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 Post subject: Re: Keep 401K or rollover to Roth IRA
PostPosted: Wed Aug 22, 2012 11:54 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1590
Location: Seattle, WA
bumblesmama wrote:
I know there are max. contributions to Roth IRAs,

The max, which is $5000 and is set by the federal government, does not apply to rollover contributions. Nor does it apply to conversions from traditional IRAs.

bumblesmama wrote:
are there minimums?

The minimums vary and are set by the brokerage (or bank) you transfer the money to.

bumblesmama wrote:
If I do rollover, what should my expectations be as far as cost to rollover?

It should be free to roll money into an account. The 401(k) provider might charge you a fee to transfer money out, though. There's not much you can typically do about that.

bumblesmama wrote:
Any advice on where to do that; I do not have thousands to put in a place like Vanguard, even though I would like to? My local credit union, e*Trade, Sharebuilder, a local bank?

Vanguard would be the best if you could. Credit union or local bank are probably terrible options. I personally am not a fan of ShareBuilder; their fees to invest in index funds are too high (as in, more than zero).

Are you willing to tell us how much there is specifically? That would help us tell you where to put it.


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 Post subject: Re: Keep 401K or rollover to Roth IRA
PostPosted: Wed Sep 12, 2012 2:43 pm 

Joined: Mon Sep 10, 2012 2:44 pm
Posts: 18
So if you leave a company and roll over your 401k into your roth lets say 2,000 you can still contribute the full 5,000 that year? totalling 7,000? I'm just curious for the future this is would be a good thing to know.


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 Post subject: Re: Keep 401K or rollover to Roth IRA
PostPosted: Wed Sep 12, 2012 3:14 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1590
Location: Seattle, WA
namesbond wrote:
So if you leave a company and roll over your 401k into your roth lets say 2,000 you can still contribute the full 5,000 that year? totalling 7,000? I'm just curious for the future this is would be a good thing to know.


Yes. The limit is $5000 across all IRA accounts of any type. $6000 (total) if you're over 50. Rollover contributions do not count against the limit.


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