aot2002
New Member
Cash: $ 0.90
Posts: 4
Joined: 27 Jan 2011
Location: NY
|
| 401K to Roth IRA |
 |
|
I know that a roth ira is tax free and currently I am 31 with 7K in my 401K which employer match's.
I'd prefer the tax free later as my option but I'm not sure what happens if I roll the 7K of my 401K into a roth ira account...
Will the 7K no longer in 401K hurt it's growth as well?
Will the 7K in Roth IRA require me to continue to fund it or roll more 401K money later?
Should I roll the Roth IRA to a company other then T rowe price, example who has the least fee's ?
Any advice on this while I'm still young would be awesome
|
Sat Jul 30, 2011 1:54 am |
|
|
oldguy
Senior Member
Cash: $ 309.10
Posts: 1480
Joined: 21 May 2006
Location: arizona
|
quote:
I'd prefer the tax free later as my option but I'm not sure what happens if I roll the 7K of my 401K into a roth ira account...
That doesn't make much sense - did you do the math to find out whether a pretax IRA would be better than an aftertax IRA?
The determining factor is your tax bracket - if you are in a high tax bracket, you should take your tax break now and pay your taxes a little at a time after age 70 1/2 (401k). And if you are in a low tax bracket, pay your tax now and take your tax break when your retire (Roth). From your earlier post it looks like you gross over $90,000 so you would want the 401k.
If you do the Roth conversion on your $7000 it will cost about $2500 in Fed & State taxes, so you will be left with only $4500 to put in the Roth.
|
|
Sat Jul 30, 2011 2:42 am |
|
|
aot2002
New Member
Cash: $ 0.90
Posts: 4
Joined: 27 Jan 2011
Location: NY
|
I just don't want to wait until I'm 50 to 60 to know I made the right decisions to move the money to a ROTH IRA or leave in my 401K.
Taxes SUCK !
I may make that much but I also have 6 kids so the offset on taxes are not as bad as you'd think I don't even pay in.
Not sure if that's the kind of things you mean?
Would you recommend I start a roth ira for the kids since they are so young now?
|
|
Sat Jul 30, 2011 2:48 pm |
|
|
oldguy
Senior Member
Cash: $ 309.10
Posts: 1480
Joined: 21 May 2006
Location: arizona
|
|
|
|
quote:
just don't want to wait until I'm 50 to 60 to know I made the right decisions
Don't use that approach to your decision making. The Tax Code is an ever-changing thing - eg, I was once in a 40% or 50% tax bracket when I first got out of college, later Reagon cut it to 28%. I've sold rental houses when cap gains tax was 24%, 28%, 15% - it's been all over the map. Some years you deduct gas tax, sales tax, sometimes no. In fact, the US could switch to the Fair Tax and make the tax-free Roths useless. So don't put all of your investments under a single tax status - you could be 100% wrong. Use all 3 tax status accounts - ie, Roth, IRA, and taxable. Just as you diversify your investments, you should also diversify your tax status. Spread your decisions so that you make money no matter what the govt does.
As for Taxes SUCK - any time that I get hit with a high tax bill it means that I made a LOT of money that year, LOL.
quote:
Would you recommend I start a roth ira for the kids since they are so young now?
Not allowed, the IRAs must be funded with earned income, your kids would have to earn W2 money. But there would be no point to it - people put money in their kids names to avoid the taxes, the Roth is already tax-free.
|
|
Sat Jul 30, 2011 3:13 pm |
|
|
kate032
Preferred Member
Cash: $ 22.35
Posts: 111
Joined: 25 Feb 2011
Location: Michigan
|
quote:
Originally posted by oldguy
So don't put all of your investments under a single tax status - you could be 100% wrong. Use all 3 tax status accounts - ie, Roth, IRA, and taxable. Just as you diversify your investments, you should also diversify your tax status. Spread your decisions so that you make money no matter what the govt does.
That's some of the smartest advice I've ever heard. Many people assume that Roth IRAs are always the wisest choice for those who qualify.
|
|
Sat Jul 30, 2011 5:43 pm |
|
|
jfurnish
Contributing Member
Cash: $ 7.00
Posts: 35
Joined: 01 Jul 2011
Location: CA
|
I would have to agree with the all three approach. You just have to set it up that it is automatic every month or paycheck which ever works for you. Obvisouly the 401k is every paycheck it will be the other two accounts you will have to work out. These days it is very easy to setup automatic electronic transfers.
Be sure to keep increasing your Financial IQ.
|
|
Sun Jul 31, 2011 12:43 am |
|
|
|
