Financial Question

[disney junky]

I mentioned last week that my wife got a new job. We learned since then that she can actually retire from the school system though her monthly income is minimal. The big deal is that she will be able to withdraw her contributions and interest. For the first time in my life, I need to understand what it means to rollover money into something. The her contributions and interest were pretax, so unless we do this there will be tax ramifications. We don't want the money now. We don't need it as she will be getting a new job for about the same money, but how does a rollover work?

 

[minkydog]

Sounds like you need a financial planner. We found ours through our bank. I don't know much about investing, but our guy does and he has done well for us.

 

[Suzanne033]

Most banks have Asset Advisors who can help you with IRAs, rollovers, 401(k)s, etc.

 

[BunsenH]

If you offer to open an IRA at your bank, I'm sure that they would lead you through the process of rolling over the funds into it.

 

[golfgal]

I mentioned last week that my wife got a new job. We learned since then that she can actually retire from the school system though her monthly income is minimal. The big deal is that she will be able to withdraw her contributions and interest. For the first time in my life, I need to understand what it means to rollover money into something. The her contributions and interest were pretax, so unless we do this there will be tax ramifications. We don't want the money now. We don't need it as she will be getting a new job for about the same money, but how does a rollover work?

Is this a pension or a 401K? Not that it matters that much but you may want to look into the specifics of the plan before you do anything. If it is a pension and it is older, it might be at a very good interest rate, in which case, you might want to leave it alone. If not, you can do a direct roll over into a Traditional IRA, it will be called a Rollover IRA or something along those lines on your actual paperwork. You need to set up the account with a brokerage firm and they submit the paperwork to have the money rolled into the IRA for you. It takes a few weeks to complete all of this depending on how cooperative/efficient each side of the rollover is. Once the money is rolled over, it acts just like any other IRA and at 70 1/2 you have to start taking distributions (which is another reason you may want to leave it in the pension if it is a pension).

I agree, find a GOOD financial planner to walk you through the information you need-look at your individual situation and see what is the best option for you. If you meet with someone that just wants to do the rollover without looking at various options, find someone else--they just want the commission off the rollover.

 

[mickeyboat]

Good advice above. Whatever you do, DO NOT have the pension / 401(k) sent to you first with the intention of then opening an IRA. In order to avoid tax or penalty consequences, YOU MUST have the rollover happen directly from bank to bank.

 

[golfgal]

Good advice above. Whatever you do, DO NOT have the pension / 401(k) sent to you first with the intention of then opening an IRA. In order to avoid tax or penalty consequences, YOU MUST have the rollover happen directly from bank to bank.

Well, technically, you can have it sent to you, they hold back 20% in taxes, you have 90 days to roll it into an account and if you do that, they release the 20% to that account. It's just a lot easier NOT to have it sent to you directly.

 

[disney junky]

Is this a pension or a 401K? Not that it matters that much but you may want to look into the specifics of the plan before you do anything. If it is a pension and it is older, it might be at a very good interest rate, in which case, you might want to leave it alone. If not, you can do a direct roll over into a Traditional IRA, it will be called a Rollover IRA or something along those lines on your actual paperwork. You need to set up the account with a brokerage firm and they submit the paperwork to have the money rolled into the IRA for you. It takes a few weeks to complete all of this depending on how cooperative/efficient each side of the rollover is. Once the money is rolled over, it acts just like any other IRA and at 70 1/2 you have to start taking distributions (which is another reason you may want to leave it in the pension if it is a pension).

I agree, find a GOOD financial planner to walk you through the information you need-look at your individual situation and see what is the best option for you. If you meet with someone that just wants to do the rollover without looking at various options, find someone else--they just want the commission off the rollover.

It's a pension, and she'll now be getting into a 401K. I am hoping we could roll it into that. I expect we'll have to talk to an adviser. She does have a Roth. Can you have both a Roth and a traditional IRA? Can you make the maximum contributions to both?

 

[brerrabbit]

Whether it is a pension or 401(k) if they are willing to release the funds I would seriously consider moving it. I have rolled 401(k)'s several times in my career. I would recommend setting up a self directed IRA account with someone like Fidelity (that's where mine is) or another company like it. Then you notify the holder of the assets where you want the funds directed. The transfer will take place and there are no tax consiquinces. I am not in favor of transferring the money to the new company simply because you might be limited to the types of investments you can put your money into. With someone like fidelity you can invest it in stocks, mutual funds, bonds etc. Also your controll the account and are not subject to a specific companies plan rules.

Ask the group that currently holds the the funds if they have a simple what if calculator that many funds offer. Ask them to project the value of the pension if your wife holds it till 60 or 65 and see what it's value would be. Then compare what kind of return that is to what you think you could make if you took the balance today and put it in a self directed IRA. Based on that you can make a decent decsion as to whether you should leave it there or our put it into the self directed IRA.

 

[disney junky]

Whether it is a pension or 401(k) if they are willing to release the funds I would seriously consider moving it. I have rolled 401(k)'s several times in my career. I would recommend setting up a self directed IRA account with someone like Fidelity (that's where mine is) or another company like it. Then you notify the holder of the assets where you want the funds directed. The transfer will take place and there are no tax consiquinces. I am not in favor of transferring the money to the new company simply because you might be limited to the types of investments you can put your money into. With someone like fidelity you can invest it in stocks, mutual funds, bonds etc. Also your controll the account and are not subject to a specific companies plan rules.

Ask the group that currently holds the the funds if they have a simple what if calculator that many funds offer. Ask them to project the value of the pension if your wife holds it till 60 or 65 and see what it's value would be. Then compare what kind of return that is to what you think you could make if you took the balance today and put it in a self directed IRA. Based on that you can make a decent decsion as to whether you should leave it there or our put it into the self directed IRA.

It's a state pension. Straight 4%. She isn't superannuated until she's 62 and that's 11 years. She can take the lump sum and a reduced monthly income for 11 years before that, so to me it's a no brainer. My problem is what to do with it. We use Fidelity for a lot of our stuff and pretty much planned to fund her Roth with the monthly checks, it's just the lump sum that we're mostly concerned about.

 

[goodeats]

I left a job with a vested pension. Since I was only in my early 30's I decided that I would rather be able to control the money instead of relying on the pension to still be around in 30 years. I set up a Rollover IRA with Vanguard and gave the pension plan my information. They either sent me a check made out to Vanguard or mailed it directly to Vanguard.

It was really easy, and the best part - no taxes!

 

[golfgal]

It's a pension, and she'll now be getting into a 401K. I am hoping we could roll it into that. I expect we'll have to talk to an adviser. She does have a Roth. Can you have both a Roth and a traditional IRA? Can you make the maximum contributions to both?

You may or may not be able to roll into the 401K but even if you can, I would put it into a traditional IRA instead, you just have more control over those funds. Yes, you can have both a ROTH and a traditional IRA, and yes, you can max both.

It's a state pension. Straight 4%. She isn't superannuated until she's 62 and that's 11 years. She can take the lump sum and a reduced monthly income for 11 years before that, so to me it's a no brainer. My problem is what to do with it. We use Fidelity for a lot of our stuff and pretty much planned to fund her Roth with the monthly checks, it's just the lump sum that we're mostly concerned about.

At 4% I would probably take it out without knowing all of your financial situation, if it was more like 6%, I would leave it in there. Since you already have Fidelity, stick with them so you get breakpoints (fee reductions) on your investments. You can roll it into a Traditional IRA and then roll it into her Roth BUT you pay tax on that sum so it really depends on the amount and how much tax you are willing to pay, what the long term gains are, etc. whether that is a good move or not. Talk to your Fidelity guy.

 

[manning]

Good advice above. Whatever you do, DO NOT have the pension / 401(k) sent to you first with the intention of then opening an IRA. In order to avoid tax or penalty consequences, YOU MUST have the rollover happen directly from bank to bank.

That is correct. If you take the money first you end up paying the taxes. If you do that you have to put all the money into an IRA BEFORE the IRS will return the taxes you paid on it. Something a lot of people have a hard time doing.

 

[brerrabbit]

Put the lump sum in the self directed IRA with Fidelity and fund the Roth with the monthly. Once the lump sum is in the IRA then you can decide what amount you want to transfer to the Roth. You will have to pay taxes on the amount you convert but it will then be in the Roth. I contribute to a Roth on a regular basis but won't convert my traditional IRA over because quite frankly I don't want to take the tax hit because to me it would be a waste of money based on our families overall income.

 

[Cheshire Figment]

It's a state pension. Straight 4%. She isn't superannuated until she's 62 and that's 11 years. She can take the lump sum and a reduced monthly income for 11 years before that, so to me it's a no brainer. My problem is what to do with it. We use Fidelity for a lot of our stuff and pretty much planned to fund her Roth with the monthly checks, it's just the lump sum that we're mostly concerned about.

Since you use Fidelity, they can handle rollovers and you would have a wide variety of investments. I would contact them as they have professional advisers.

Mike (CPA Retired)