I am looking at switching jobs and am wondering where it would be best to put my current 401k money…into a new 401k, a traditional IRA or a ROTH IRA. I currently have a ROTH IRA and enjoy the ability to invest in what I want. I also enjoy knowing that the money I see will not be taxable upon retirement. I’m leaning this way because I’m 24, my wife is 22. We are both engineers, we have an AGI of a shade under 100k for 2007, and I anticipate retiring in a higher tax bracket (currently in the 25% range). Another factor is does the rollover count as a contribution for the current year? Also, are there any tax implications for any of the choices?? Any information on this would be helpful as I am pretty ignorant when it comes to rollovers. Thanks!
Marion
{ 6 comments… read them below or add one }
Alvin
A rollover does NOT count as a contribution.
I’m all for the IRA rollover, but you can’t roll a 401(k) account directly into a Roth (one is pretax, the other aftertax dollars). You can roll it into a traditional IRA (and perhaps later convert that to a Roth - there are tax consequences).
Bessie
I would say it depends on the quality of your new employer’s 401k and whether they will even take it. Most people like the independence of rolling it into a self-directed IRA so they have the complete investment control.
If you roll to a traditional IRA, there are no tax consequences, and it’s not counted as a contribution for the current year.
If you roll to a Roth, you will have to pay the taxes on it and then invest the remainder. You can always change it to a Roth at any time, just paying the taxes on it when you make the change. Of course, if you anticipate earning more money, you will be out of the Roth IRA range. So, it might be to your advantage to pay the taxes now (out of the IRA proceeds) and then invest what is left in the Roth.
It wouldn’t hurt to consult an accountant regarding the tax implications. If you have more questions, email me and I will get the answers for you.
Cody
Paying the taxes out of the 401(k) money and investing the remainder in a Roth has the same result as just rolling the entire balance over into a traditional IRA. Roll everything over into a traditional IRA until you can come up with the money out of pocket to convert it to a Roth.
Dana
I prefer the Roth IRA in your situation.
Typically you have more freedom.
Rollover do not count against contribution limits.
Taxes info. Go to the source, irs.gov
Carla
I would recommend rolling it over into a IRA account. If you roll it over into a Roth Account (Post tax dollars) from a 401(k) (Pre tax dollars) you will obviously have to pay taxes and it wouldn’t surprise me if it is just handled as taking a withdrawal (paying taxes and penalty) and then putting it into a Roth IRA.
If you do a roll over make sure it is done correctly if you are switching your financial institutions (i.e. your 401(k) is with Fidelity and you want to roll it over to a Charles Schwab account). The biggest thing is that the check needs to be written to the new financial institution to the care of you. If the check is issued in your name than you will have to pay taxes on contribution up front but it will even out since you get to reduce your taxes by that amount at the end of the year. If your employer is not matching any contributions than I would contribute all of my money into a Roth IRA account. If they do match than I would probably go with the 401K. If they have a Roth 401(k) than do the Roth 401(k).
Francis
A traditional IRA, a Roth counts as a distribution.
I prefer Scottrade as they have no fees, and lots of stocks and no-load, no transaction fee mutual funds I can invest in.
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