| Roth 401k and Roth IRA (rollover) |
|
|
|
|
|
rogelio
New Poster
Cash: $ 0.45
Posts: 2
Joined: 08 Dec 2011
|
| Roth 401k and Roth IRA (rollover) |
 |
|
I'm in my mid-twenties looking to invest about $5k per year (for now) into my company's 401k plan (they offer traditional and roth - I'm opting for roth because my salary and thus tax-bracket will likely expand over the next 40+ years of employment but is on the lower side now... maybe at some point at the peak of my salary or upward trend, I'll switch to a traditional 401k).
I asked my company's HR person to look into if there's a penalty or any other associated fee for rolling over money from the Roth401k into a traditional RothIRA... since Roth is post-tax, there should be no tax-fee assessed (since it's already paid at the time of contribution)... but i'm wondering if there's any other sort of fee that's generally associated with this rollover activity.
As I understand it, one main advantage of the roth IRA (distinct from roth 401k) is that as soon as you establish a roth IRA account, and have had the account open for 5 years (e.g. by the time I'm 30/31), you get to pull out up to $10,000 from that account for first-time home purchase. If I understand this correctly, ideally I should setup a RothIRA account as soon as possible (put a nominal amount of money in there), and then transfer over >=$10,000 from my roth401k into the rothIRA when I want to buy a house (which goes back to my question above about a rollover fee/penalty).
I was wondering if somebody could help outline advantages of having money split between Roth401K's and RothIRA's... I'm not entirely clear on the pro's/con's of balancing the investment portfolio more heavily on the Roth401k, or rolling over more into the RothIRA (e.g. returns/growth, special cases or tax-breaks, penalties, etc. of one versus the other or what balancing scheme makes the most over time).
Thanks!
|
Thu Dec 08, 2011 6:29 pm |
|
|
oldguy
Senior Member
Cash: $ 309.10
Posts: 1480
Joined: 21 May 2006
Location: arizona
|
quote:
returns/growth
The returns are not affected by the type of account - ie, you can put a CD, bonds, stocks in any/all of the accounts.
As for switching from a Roth 401k to a Roth IRA, the rules don't allow that. You would need to change jobs, you cannot cash-out 401k's while you are still employed with a company.
Why not put your house money in a taxable brokerage account - invest in things that grow tax deferred and are subject only to capital gains tax on the profit when you sell.
|
|
Thu Dec 08, 2011 10:56 pm |
|
|
coaster
Senior Advisor
Cash: $ 1357.20
Posts: 6683
Joined: 11 Oct 2005
Location: Wisconsin
|
You cannot move the money, as explained above, you can, however, have as many multiple accounts as your wish going forward so long as the contributions don't exceed the limits imposed by the IRS for the types of accounts allowed.
As far as having your own Roth IRA in additional to your company 401(k), ya, I think that's a fine idea. Open an individual account with any investment company you choose; I recommend T Rowe Price, Vanguard and Fidelity; and USAA for vets and families. And when you've maxed out your tax-qualified contributions, you can investment as much as you want without any limits in a taxable account.
~Tim~
Eye Candy : Why Whimsy
|
|
Fri Dec 09, 2011 12:46 am |
|
|
rogelio
New Poster
Cash: $ 0.45
Posts: 2
Joined: 08 Dec 2011
|
|
|
|
quote:
As for switching from a Roth 401k to a Roth IRA, the rules don't allow that. You would need to change jobs, you cannot cash-out 401k's while you are still employed with a company.
Sorry for the naive question. Let's take two scenarios
1) I stay with said company until retirement. What are my options on when/what I can withdraw - what are the rules for withdrawl on the roth 401k plan (do I have to reach 59.5?). What penalties if I pull out before then? What happens if i leave the money in that roth 401k account and the company goes under (I understand the money is managed by an investment firm, but I'm wondering if there are any implications if my own company goes under).... now what about if that investment company/firm goes under?
2) I leave said company in a few years. I assume my money is still vested in the 401k account and entitled to mature (e.g. scenario 1 above) until retirement if I wish to leave it in that plan. if however I am working at a new company (with its separate 401k), can I simply move all that money into the the 401k plan (or into a traditional roth IRA) without penalty? Is it solely the fact that I'm still employed with the company now that prevents me from moving the money out of the 401k?
I've also read that concurrently investing in index funds and bonds (possibly a 80-20 ratio) is good for shorter-term investment since all this 401k and roth IRA investment won't be touched until my 60's. How would you split the difference between investing in this and a (roth) 401k concurrently (e.g. 50-50 index-fund/bond investment, 401k)? Is there a particular index fund / bond investment broker/company you recommend?
|
|
Fri Dec 09, 2011 3:59 am |
|
|
oldguy
Senior Member
Cash: $ 309.10
Posts: 1480
Joined: 21 May 2006
Location: arizona
|
For nearly all company 401k-type plans, the money that you invest there during your career stays there until you quit or retire. And when you quit or retire, you 'roll' the 401k to a Traditional IRA at a no-load company such as Vanguard or Fidelity. There is no tax due or penalty. Commonly you would roll your 401k to your IRA at every job change and again at retirement, so ultimately all of your funds end up in the Trad IRA.
And you would also place your taxable account with a company such as Vanguard or Fidelity.
The 80-20 is OK, at your age 100-0 or 90-0 might be better. And then as you get into you 40's go down to 80-20, then 60-40 in your 50's, and so on. Most of us have roughtly 30 yrs for wealth accumulation, then we must phase into wealth preservation to protect the wealth from market volatility as you retire & quit earning.
|
|
Fri Dec 09, 2011 1:23 pm |
|
|
coaster
Senior Advisor
Cash: $ 1357.20
Posts: 6683
Joined: 11 Oct 2005
Location: Wisconsin
|
quote:
Originally posted by rogelio
shorter-term investment
Please don't even THINK of "investing" and "short-term" in the same mental picture. I've written plenty on this board about why not; feel free to investigate if your curiosity is piqued.
~Tim~
Eye Candy : Why Whimsy
|
|
Sat Dec 10, 2011 6:54 am |
|
|
|
