mikef07 said: heyeaglefn said: mikef07 said: Looking for advice on 401K.
My wife and I currently have our 401K and are thinking about withdrawing all of the money:
Currently after all deductions we are in the 33% tax bracket for this year. If we take it out we would incur a 10% penalty which would push the amount to 43%.
Starting next year it is almost assured we will be in the 39.6% bracket for the rest of our lives. While I realize that it is almost 3.5% more by taking the money now it would give us more flexibility with the money. Thoughts?
What is the reason for wanting to withdraw the money? Are you still at the employer that you have the 401k with, I don't think you can take the money out if it is an active 401k, but you can take a loan. Most of the time you do not want to withdraw the money unless it is a life or death situation, you are going to lose 43% of the money as well as tax free growth for years.
My apologies. THey have been rolled over already. Left employers.
I am going to lose 40% (as of today's tax rates) or more in the future (assuming tax rates go higher) as I withdraw. What am I missing? Tax free growth I guess?
Assuming you are doing this for relative tax rate purposes and not liquidity purposes, and therefore the original question still applies to whatever you rolled it into, I would ask why not convert to Roth? You would still have to pay taxes now but would avoid the penalty and any further taxes on gains. Moreover you could do it piecemeal over several years if that helped you stay within a particular bracket or avoid a particular phaseout.
Added bonus would be that once the rollover IRA was converted to Roth, it would clear the path for annual backdoor Roth contributions, if that mattered to you. An alternative route to allow this would be to roll your rollover into an individual 401k or your new employer's 401k, if applicable to your situation.
DrDubious said: mikef07 said: heyeaglefn said: mikef07 said: Looking for advice on 401K.
My wife and I currently have our 401K and are thinking about withdrawing all of the money:
Currently after all deductions we are in the 33% tax bracket for this year. If we take it out we would incur a 10% penalty which would push the amount to 43%.
Starting next year it is almost assured we will be in the 39.6% bracket for the rest of our lives. While I realize that it is almost 3.5% more by taking the money now it would give us more flexibility with the money. Thoughts?
What is the reason for wanting to withdraw the money? Are you still at the employer that you have the 401k with, I don't think you can take the money out if it is an active 401k, but you can take a loan. Most of the time you do not want to withdraw the money unless it is a life or death situation, you are going to lose 43% of the money as well as tax free growth for years.
My apologies. THey have been rolled over already. Left employers.
I am going to lose 40% (as of today's tax rates) or more in the future (assuming tax rates go higher) as I withdraw. What am I missing? Tax free growth I guess?
Assuming you are doing this for relative tax rate purposes and not liquidity purposes, and therefore the original question still applies to whatever you rolled it into, I would ask why not convert to Roth? You would still have to pay taxes now but would avoid the penalty and any further taxes on gains. Moreover you could do it piecemeal over several years if that helped you stay within a particular bracket or avoid a particular phaseout.
Added bonus would be that once the rollover IRA was converted to Roth, it would clear the path for annual backdoor Roth contributions, if that mattered to you. An alternative route to allow this would be to roll your rollover into an individual 401k or your new employer's 401k, if applicable to your situation.
Forgive my ignorance but I am guessing rolling it into ROTH would mean I pay tax rate now (33%) instead of 40% later. Since I don't necessarily need the liquid cash this might make the most sense. The reason I did not convert before to ROTH was due to a large tax bill being due when I converted. That won't be an issue going forward so that may make the most sense. Not sure backdoor ROTH would matter later as the amount that I could put into a ROTH each year is simply such a small % that I am not sure that matters.
I also won't likely have an employer based 401K later due to my situation changing. Not sure I would ever work again.
Anything you convert from traditional to Roth now would be income in the year you do it, and taxed accordingly. Anything you withdraw from traditional would be income in the year you do it, and taxed accordingly + be subject to penalty.
(These statements assume that the basis in the traditional account is 0. If it's not, I believe the comparative value of conversion vs withdrawal still holds true, although the calculation of what is taxable and/or subject to penalty is a bit more complicated).
Assuming you have earned income and no money in traditional IRA's, doing the backdoor Roth takes about 5 minutes total to do the transactions online and another 5 to do form 8606 once a year. Even if it takes you 60 minutes to figure out how to do it the first time, your time would have to be really valuable to make it not worth doing.
DrDubious said: Anything you convert from traditional to Roth now would be income in the year you do it, and taxed accordingly. Anything you withdraw from traditional would be income in the year you do it, and taxed accordingly + be subject to penalty.
(These statements assume that the basis in the traditional account is 0. If it's not, I believe the comparative value of conversion vs withdrawal still holds true, although the calculation of what is taxable and/or subject to penalty is a bit more complicated).
Assuming you have earned income and no money in traditional IRA's, doing the backdoor Roth takes about 5 minutes total to do the transactions online and another 5 to do form 8606 once a year. Even if it takes you 60 minutes to figure out how to do it the first time, your time would have to be really valuable to make it not worth doing.
Thank you! Thank you! thank you!
Never thought I would say this, but it looks like the backdoor is the best option for me.
mikef07 said: DrDubious said: Anything you convert from traditional to Roth now would be income in the year you do it, and taxed accordingly. Anything you withdraw from traditional would be income in the year you do it, and taxed accordingly + be subject to penalty.
(These statements assume that the basis in the traditional account is 0. If it's not, I believe the comparative value of conversion vs withdrawal still holds true, although the calculation of what is taxable and/or subject to penalty is a bit more complicated).
Assuming you have earned income and no money in traditional IRA's, doing the backdoor Roth takes about 5 minutes total to do the transactions online and another 5 to do form 8606 once a year. Even if it takes you 60 minutes to figure out how to do it the first time, your time would have to be really valuable to make it not worth doing.
Thank you! Thank you! thank you!
Never thought I would say this, but it looks like the backdoor is the best option for me.
LOL, there are so many ways to run with that one but I'll just leave it alone.
Anyway, I'm glad if that helps, and congratulations on what sounds like your ship coming in.
mikef07 said: heyeaglefn said: mikef07 said: Looking for advice on 401K.
My wife and I currently have our 401K and are thinking about withdrawing all of the money:
Currently after all deductions we are in the 33% tax bracket for this year. If we take it out we would incur a 10% penalty which would push the amount to 43%.
Starting next year it is almost assured we will be in the 39.6% bracket for the rest of our lives. While I realize that it is almost 3.5% more by taking the money now it would give us more flexibility with the money. Thoughts?
What is the reason for wanting to withdraw the money? Are you still at the employer that you have the 401k with, I don't think you can take the money out if it is an active 401k, but you can take a loan. Most of the time you do not want to withdraw the money unless it is a life or death situation, you are going to lose 43% of the money as well as tax free growth for years.
My apologies. THey have been rolled over already. Left employers.
I am going to lose 40% (as of today's tax rates) or more in the future (assuming tax rates go higher) as I withdraw. What am I missing? Tax free growth I guess?
The fact that when you retire you probably won't be in the 39.6% tax bracket (remember you have to fill up the 0%, 10%, 15%, 25%, 28%, 33% and 35% bracket each year to be in the 39.6% bracket).
stanolshefski said: mikef07 said: heyeaglefn said: mikef07 said: Looking for advice on 401K.
My wife and I currently have our 401K and are thinking about withdrawing all of the money:
Currently after all deductions we are in the 33% tax bracket for this year. If we take it out we would incur a 10% penalty which would push the amount to 43%.
Starting next year it is almost assured we will be in the 39.6% bracket for the rest of our lives. While I realize that it is almost 3.5% more by taking the money now it would give us more flexibility with the money. Thoughts?
What is the reason for wanting to withdraw the money? Are you still at the employer that you have the 401k with, I don't think you can take the money out if it is an active 401k, but you can take a loan. Most of the time you do not want to withdraw the money unless it is a life or death situation, you are going to lose 43% of the money as well as tax free growth for years.
My apologies. THey have been rolled over already. Left employers.
I am going to lose 40% (as of today's tax rates) or more in the future (assuming tax rates go higher) as I withdraw. What am I missing? Tax free growth I guess?
The fact that when you retire you probably won't be in the 39.6% tax bracket (remember you have to fill up the 0%, 10%, 15%, 25%, 28%, 33% and 35% bracket each year to be in the 39.6% bracket).
Yes I realize that and I likely will be each and every year as in income will be well over $450,001 each (married filing jointly) and every year starting in 2014 (maybe 2013)
mikef07 said: Yes I realize that and I likely will be each and every year as in income will be well over $450,001 each (married filing jointly) and every year starting in 2014 (maybe 2013) Curious, did you hit the lottery or something. I know you alluded to this in some earlier posts in other threads. Maybe you are going to have a tell-all thread.
uutxs said: mikef07 said: Yes I realize that and I likely will be each and every year as in income will be well over $450,001 each (married filing jointly) and every year starting in 2014 (maybe 2013) Curious, did you hit the lottery or something. I know you alluded to this in some earlier posts in other threads. Maybe you are going to have a tell-all thread. Mike makes a lot -- well over $200K -- and I believe his spouse does as well.
uutxs said: mikef07 said: Yes I realize that and I likely will be each and every year as in income will be well over $450,001 each (married filing jointly) and every year starting in 2014 (maybe 2013) Curious, did you hit the lottery or something. I know you alluded to this in some earlier posts in other threads. Maybe you are going to have a tell-all thread.
This has nothing to do with my income from my job. Working on something pretty big and will tell all when the times comes and I am allowed to talk about it. It is an all or nothing situation and will likely be in 9 figures (not a typo) or zilch. If it does not pan out I will still have a tell all thread as people here would find it interesting.
ETA: Anticipate the first deal coming in the next 6 months and the last one could be 12-18 months away. If the first hits all will.
stanolshefski said: uutxs said: mikef07 said: Yes I realize that and I likely will be each and every year as in income will be well over $450,001 each (married filing jointly) and every year starting in 2014 (maybe 2013) Curious, did you hit the lottery or something. I know you alluded to this in some earlier posts in other threads. Maybe you are going to have a tell-all thread. Mike makes a lot -- well over $200K -- and I believe his spouse does as well. I know, but that is still far from "well over $450,001 each and every year" for the rest of his life. As mikef07 said below, something big is brewing and his recent post about taking out 401k money made me think perhaps his endeavor has fructified. Maybe not yet but probably soon.
mikef07 said: uutxs said: mikef07 said: Yes I realize that and I likely will be each and every year as in income will be well over $450,001 each (married filing jointly) and every year starting in 2014 (maybe 2013) Curious, did you hit the lottery or something. I know you alluded to this in some earlier posts in other threads. Maybe you are going to have a tell-all thread.
This has nothing to do with my income from my job. Working on something pretty big and will tell all when the times comes and I am allowed to talk about it. It is an all or nothing situation and will likely be in 9 figures (not a typo) or zilch. If it does not pan out I will still have a tell all thread as people here would find it interesting.
-Father passed away April 2013. Left IRA to me so this is an inherited IRA. -My age: 66 -The company that held his IRA made the transfer to my name but still under inherited IRA rules.
Im told that I can do a trustee to trustee transfer to my bank for the dollar amount.
How many days do I have to do the transfer? Im also told that I am forced to take a Required minimum Distribution based on my life expectancy even though im not 70 1/2.
mikef07 said: uutxs said: This has nothing to do with my income from my job. Working on something pretty big and will tell all when the times comes and I am allowed to talk about it. It is an all or nothing situation and will likely be in 9 figures (not a typo) or zilch. If it does not pan out I will still have a tell all thread as people here would find it interesting.
ETA: Anticipate the first deal coming in the next 6 months and the last one could be 12-18 months away. If the first hits all will.
Thank you all for the 401K advice.
If I were facing this situation, I'd probably optimize the 401k decision for the case where the business fails, by rolling the 401k into a traditional IRA.
I must add that I am not qualified to advise anyone in these matters. What I have stated is just my possibly highly flawed layman's opinion offered in the hope that it might give you another idea to check out in your further research. Good luck.
I was laid off around 3/31/13 and have around $30k in a 401k. Right now I'm self-employed, running an LLC in AZ and need to get this $$ into something. To complicate things I have a loan on that 401k with a $10k balance that needs to be paid back within 60 days of termination or it gets taxes and penalized.
I've got the $$ to pay back that loan but am wondering if there is someway to avoid that by some rollover alternatives or something?? I'm also looking at getting into a lendingclub IRA at some point. The reviews and potential there look pretty good.
I have no certification of any kind that would qualify me to advise you, so please take the following suggestion as my layman's opinion, which I offer just as ideas that you can check out with someone who is qualified to advise you. Also, I am assuming here that your goal is approximately to recreate the financial arrangement you had prior to being laid off.
1. Pay off the the 401k loan. 2. Roll the 401k into a traditional IRA, preferably by trustee-to-trustee transfer. 3. Create a new 401k under your LLC. Alternatively, you might be able to do this under yourself if you don't want to use your LLC if you have some other activity that could be considered a sole proprietorship, even if it has not yet generated revenue. TD Ameritrade and E-Trade both provide forms to create self-directed solo 401k's for free, and have language in those forms allowing participant loans. 4. Roll the new IRA into the new 401k. 5. Borrow the money back out from your new 401k when you need it, but not before, because, if I recall correctly, 401k's, IRA's and maybe HSA's too, are safe from creditors and bankruptcy.
I think you might be able to transfer directly between 401k's, avoiding the traditional IRA, but I'm not sure.
I believe there is a one year delay from paying off a 401k loan until the time when those funds are available again to qualify you for making a new 401k loan, but I suspect that that does not apply in this case, since the loans would be from different 401k's and different employers.
careful said: I have no certification of any kind that would qualify me to advise you, so please take the following suggestion as my layman's opinion, which I offer just as ideas that you can check out with someone who is qualified to advise you. Also, I am assuming here that your goal is approximately to recreate the financial arrangement you had prior to being laid off.
1. Pay off the the 401k loan. 2. Roll the 401k into a traditional IRA, preferably by trustee-to-trustee transfer. 3. Create a new 401k under your LLC. Alternatively, you might be able to do this under yourself if you don't want to use your LLC if you have some other activity that could be considered a sole proprietorship, even if it has not yet generated revenue. TD Ameritrade and E-Trade both provide forms to create self-directed solo 401k's for free, and have language in those forms allowing participant loans. 4. Roll the new IRA into the new 401k. 5. Borrow the money back out from your new 401k when you need it, but not before, because, if I recall correctly, 401k's, IRA's and maybe HSA's too, are safe from creditors and bankruptcy.
I think you might be able to transfer directly between 401k's, avoiding the traditional IRA, but I'm not sure.
I believe there is a one year delay from paying off a 401k loan until the time when those funds are available again to qualify you for making a new 401k loan, but I suspect that that does not apply in this case, since the loans would be from different 401k's and different employers.
Thanks Careful, your advice makes much sense and like your name implies I'll be careful! Pain in the butt to put the money back and then potentially pull it back out but it is what it is.. much better than paying $3-4k in penalty and taxes
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