I will be quitting my job in a couple of weeks to stay at home with my child. As far as what I have read up on I should put it into an IRA I think. I only started my job 5 years ago so I do not have much at all in it. Should I rollover into a traditional IRA or a Roth IRA or do I even have an option? Also since I will not have an income and we will only have my husband’s we do not plan on contributing anything to the IRA until I go back to work in several years. Do I HAVE to contribute anything to an IRA? Online articles talk about maximums you can contribute but nothing about minimums.
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I would roll it over unless you are in a severe money crunch. You don’t have to put anything in an IRA and until recently if you had no income you could NOT put any money in a Roth but now if your spouse has income that has changed.
You should roll it over into a traditional IRA, unless you make more than $50K per year…which you will not if you are quitting, you will not qualify for a Roth.
You are not required to put money into the IRA. The custodian will encourage you to, but it’s not required.
As far as whether you want an IRA or a Roth, your choice. When I rolled the money I had a ton in there (I’d had the job for more than 10 years) so I definitely didn’t want to trigger taxes yet. So I rolled the 401K to an IRA doing "trustee to trustee." Then as I got a handle on my income/tax bracket each year I decided when and how much to roll to a Roth. (I’m still rolling!) Each time I roll money to the Roth, it becomes income and I pay the tax. The first year I did it, I didn’t even pay tax on all of it–I’d been out of work and the first $10K only got me up to $0 tax, the second chunk at 10% and so on.
You may be able to leave it in your company’s 401K fund, even though you will no longer be making contributions. You can roll it over into a so called "rollover" IRA and pay no taxes or penalties. Rollover IRA’s do not require contributions, and can be rolled back into a future 401K. Roth IRA’s are for after-tax dollars, you cannot roll your 401K into a Roth IRA without paying taxes on it.
Your 401K administrator can advise you about your options. Your bank or broker would be happy to tell you about rollover IRA’s.
Grandpa
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