| 401k and "traditional IRA" questions |
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johnfinancialdiscuss
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Cash: $ 1.55
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Joined: 02 Apr 2006
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| 401k and "traditional IRA" questions |
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Folks,
I have 6 questions regarding my retirement plan.
Question 1/ I am working for company B and it does not have any retirement plan for its employees. Can I open a traditional IRA in my bank (or whatever bank) to put some of my money to it?
Question 2/ If in future, company B offers retirement plan for its employees such as 401K, then if I already open my traditional IRA in my bank (as question 1 specifies), then is there any PROBLEM to me like " I am prevented to have 2 retirement plans; one from my IRA account and the other from company B's 401K"? I mean I cannot have any EXTRA benefits from company B's retirement plan offerings because I already have my traditional IRA?
Question 3/ I'd like to open a traditional IRA account at my bank because I want to REDUCE my annual INCOME TAX (I am still single). Is it TRUE to reduce income tax by opening a traditional IRA? As I said, company B where I am working for does not offer any retirement plan for its employees.
Question 4/ When I open such a traditional IRA account at my bank, what is the BETTER WAY TO INVEST MY MONEY? I mean I need to put my money in annual interest rate (fixed rate) method OR market-driven stocks?
Question 5/ I used to work for company A but now I no longer work for it. I am working for company B now. When I was in company A, it has 401K account for me as well as other empoyees. And I invested my money in that 401k in the way of buying stocks. If I'd like to open a traditional IRA account in my bank (as question 1 specifies) to ROLLOVER money from my company A's 401k to the traditional IRA account.
SHOULD I do that?
Question 6/ What is the MAXIMUM % I can contribute to my traditional IRA?
I know it is 13% for 401K when I was in company A. But I do not know % of an IRA account.
Thanks a lot,
johnfinancialdiscuss
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Sun Apr 02, 2006 3:14 pm |
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coaster
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In plain English:
#1 - yes
#2 - you can still make contributions to the IRA, but they may not be deductible
#3 - your IRA contributions are deducted from your income, so yes, your tax is reduced according to your reduced income
#4 - the better way? don't open an IRA with a BANK
#5 - depends on how the 401(k) account is doing. If you think you can do better elsewhere, by all means roll it
#6 - it's a dollar amount -- $4000 currently, although that periodically gets adjusted higher as tax laws change
~Tim~
Eye Candy : Why Whimsy
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Sun Apr 02, 2006 5:12 pm |
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johnfinancialdiscuss
New Member
Cash: $ 1.55
Posts: 7
Joined: 02 Apr 2006
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Folks,
Thanks for your helpful advices. I still have wonder from what your feedbacks.
1/ Following your ideas, I should not open an IRA with a bank. so, what FINANCE AGENCIES I should choose? I am currently having a 401k that is kept by FIDELITY when I worked for company A. I no longer work for company A.
2/ You folks say in future if company B I am working for offers 401K plan for me, I can still make contributions to the IRA, but they may not be deductible from income tax.
If that is the case, then at that time in future, can I STOP putting my money into the IRA and ROLLOVER it to my company B 401k account so that I can get whole benefits from company B 401k?
That is because I think with IRA, I must put my money from my own pocket. In contrast, if company B offers me its 401k plan, then what is put into my 401 k account is money from mine and the company.
Thanks a lot,
johnfinancialdiscuss
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Mon Apr 03, 2006 6:15 pm |
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johnfinancialdiscuss
New Member
Cash: $ 1.55
Posts: 7
Joined: 02 Apr 2006
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Oh, one more question.
3/ Why should I not open an IRA account at a bank?
Thanks a lot,
johnfinancialdiscuss
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Mon Apr 03, 2006 6:24 pm |
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coaster
Senior Advisor
Cash: $ 1358.20
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Joined: 11 Oct 2005
Location: Wisconsin
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I don't recommend banks for investments because they generally have a limited selection of proprietary funds and because of their fees. I'd recommend an IRA with a large and well-respected fund family.
An IRA can be rolled into a 401(k) ONLY if it's a "Rollover IRA" -- ie the funds originally came from another 401(k) and were rolled into an IRA in the interim between employers -- AND NO CONTRIBUTIONS were made to the IRA in the interim period. Once contributions are made to a Rollover IRA it becomes a Traditional IRA and can no longer be rolled into a 401(k).
Honestly, I don't know why anyone would want to do that, anyway. Your investment choices in an IRA are almost always superior to your investment choices in a 401(k). The only advantage of a 401(k) is the employer match, and of course that wouldn't apply to rolled funds.
~Tim~
Eye Candy : Why Whimsy
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Mon Apr 03, 2006 7:33 pm |
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efflandt
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Location: Elgin, IL USA
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I had an IRA CD at a bank, but when I opened it, they were paying 10% interest that I locked in for 5 years (does that date me?).
When I opened my IRA at Fidelity last year they told me that there was no longer any difference between a "traditional" or "rollover" IRA, since funds can now be mixed between them (but not with a Roth IRA).
Various parts of IRS Publication 590 discuss what you can move from and to, and while it does not mention moving money from an IRA to a 401(k) specifically, it does say (but not sure what that last sentence means):
IRA as a holding account (conduit IRA) for rollovers to other eligible plans. If you receive an eligible rollover distribution from your employer's plan, you can roll over part or all of it into one or more conduit IRAs. You can later roll over those assets into a new employer's plan. You can use a traditional IRA as a conduit IRA. You can roll over part or all of the conduit IRA to a qualified plan, even if you make regular contributions to it or add funds from sources other than your employer's plan. However, if you make regular contributions to the conduit IRA or add funds from other sources, the qualified plan into which you move funds will not be eligible for any optional tax treatment for which it might have otherwise qualified.
But like coaster says, you have more investment choices in an IRA. Company match in a 401k is either a fixed amount or depends upon a percentage of your contributions, and a rollover would not count towards that anyway.
The key to any 401(k) or IRA related transfer is to do a direct trustee-to-trustee transfer. If they cut a check in your name, they are required to withhold 20%, which you have to make up within the 60 day rollover time limit, or that 20% would be taxed and penalized (you don't get credit for it until tax time).
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Tue Apr 04, 2006 4:39 am |
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coaster
Senior Advisor
Cash: $ 1358.20
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Joined: 11 Oct 2005
Location: Wisconsin
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quote:
Originally posted by efflandt
When I opened my IRA at Fidelity last year they told me that there was no longer any difference between a "traditional" or "rollover" IRA, since funds can now be mixed between them
Once you commingle funds, then it becomes a traditional IRA and can't go back to a rollover IRA. (This is per T Rowe Price, just checked on yesterday.) 
I think that's what it means when it says:
quote:
if you make regular contributions to the conduit IRA or add funds from other sources, the qualified plan into which you move funds will not be eligible for any optional tax treatment for which it might have otherwise qualified.
If you have a 401(k) that isn't eligible for "optional tax treatment" then it doesn't function as a 401(k) any more. And I doubt if any employer's plan would be capable of giving one employee different treatment. So while the IRS publication says it can be done, I think in the end T Rowe Price's answer is the practical and pragmatic answer: it can't be done.
I think the practical solution is to open TWO accounts: one to receive the 401(k) funds and function as the conduit rollover IRA, and the second account can be either a traditional or Roth IRA and receive the contributions. Then the rollover IRA only can be rolled into the new 401(k), and the second account continues as an independent IRA.
~Tim~
Eye Candy : Why Whimsy
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Tue Apr 04, 2006 12:40 pm |
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mbd
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Location: Rogers, AR
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quote:
1/ Following your ideas, I should not open an IRA with a bank. so, what FINANCE AGENCIES I should choose? I am currently having a 401k that is kept by FIDELITY when I worked for company A. I no longer work for company A.
2/ You folks say in future if company B I am working for offers 401K plan for me, I can still make contributions to the IRA, but they may not be deductible from income tax.
If that is the case, then at that time in future, can I STOP putting my money into the IRA and ROLLOVER it to my company B 401k account so that I can get whole benefits from company B 401k?
That is because I think with IRA, I must put my money from my own pocket. In contrast, if company B offers me its 401k plan, then what is put into my 401 k account is money from mine and the company.
3/ Why should I not open an IRA account at a bank?
1. A discount broker will probably give you the best deal. Look for the widest range of investment options, e.g. Bonds (not bond funds), Mutual Funds, Stocks of course, and (rarer still) Gold. Also look for the lowest IRA fees. I use Scottrade.
2. An IRA cannot be rolled over into a 401(k) as far as I know. And why would you want to? You get less flexibility/more restrictions in a 401(k). The first thing I do when I change employers is roll my old 401(k) into my traditional IRA.
3. Again, flexibility and fees. Banks usually have the worst of both, even credit unions.
I hope this is helpful to you.
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Fri Apr 07, 2006 6:27 pm |
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