Can i roll my 401k into into an IRA or any type of investment without penalties ?

Question

Can i roll my 401k into into an IRA or any type of investment without penalties ?

Answer 1

You can roll it into a conventional IRA without any penalty or tax impact.  You cannot roll it directly into a Roth IRA.

Answer 2

I am assuming you have a traditional (tax-deferred) and NOT a Roth 401(k).  Most are traditional.  Only recently is a Roth 401(k) picking up steam.

The answer to your question is yes.  If you have a 401(k) through your former employer that is tax deferred (not a Roth 401(k)), you can roll it over into another another employer's tax deferred 401(k) or open up a traditional (not a Roth) IRA and roll it over without penalties.  

Whatever you do, make sure that you do not personally receive a cash payout.  This will create a taxable transaction and penalties.  Coordinate with the bank or mutual fund company or new employer or whoever to make sure the Roll-over is done properly.

You may also be able to roll over a 401(k) into a Roth IRA or Roth 401(k) without penalties.  I would not suggest this because you WILL have to pay taxes on this transaction.  This is because a Roth is not tax-deferred.  You pay taxes on the funds before you put them into a Roth and the benefit comes in retirement as you do not pay taxes on withdrawals for Roth.

You can only rollover your 401(k) into another employer's 401(k) or a traditional IRA to avoid penalties.  All other situations will cause either taxes (Roth) or both taxes and penalties.  The good news is you can put just about whatever investment you want inside your IRA.

Also worth noting is that the penalty you speak of is 10% of whatever you withdraw.

Answer 3

Yes, you can...and SHOULD. Just for the sake of ease... roll it into a traditional  IRA...and you can add to it yearly if you wish.... or you can make your future contributions into a new ROTH IRA. Somewhere down the road, you will have two sources of income...and they will be completely different , one all yours, and one paying some income tax on...no big deal...just convenient to have them both.

Log into Fidelity or another full- service company...give them the details and they will handle 90% of the paperwork... and set up a nice " self- directed" IRA that you can buy funds, stocks, or ETFs in.... when you are comfortable with that aspect...get into a ROTH with them, too.

One tiny suggestion: as you familiarize yourself with this " investing"  get more aggressive funds or holdings in the ROTH for awhile... get a nice bundle there to start a real " snowball" rolling for your future.( Especially there, because all the gains are yours...tax-free.)

Answer 4

As mentioned you can only transfer or rollover a 401(k) if it is from a "former" employer (not current employer).  There is no tax or penalty hit for rolling it into a traditional or rollover IRA, which is best done with a direct trustee to trustee transfer (set up at the receiving end) to avoid any withholding.

If you do want to convert it to a Roth IRA, you can now do that directly, but tax would be due for the converted amount.  If they withhold from the conversion, you would owe 10% penalty on the typically 20% withholding.  So you should try to cover any tax for 401(k) to Roth IRA conversion with other money.

If it is a sizeable amount of money, you may want to transfer it to an IRA first, and then gradually convert it to a Roth IRA at a rate that does not bump your tax bracket.  I am doing that with IRA assets I had before the 401(k) existed.  I have the tax covered with W-4 withholding adjustment to convert about $9,000 to 10,000/yr.  Hopefully that will put me in a lower retirement tax bracket than if all my savings was tax deferred.

Answer 5

I agree with the information posted by bpholla2131, with one possible exception. IF you are young, if the amount of money in the 401(k) is relatively small, and if you can afford to do it, you MAY want to roll the investment into a Roth IRA. Here's why. Say for instance it's $5k and you are in the 15% tax bracket. The maximum amount of tax you would pay on that $5k now would be $750. (15% x $5k)

If you roll it into a traditional IRA, and leave it there compounding for oh, let's say 30 years, and it compounds at an average rate of 8% per year.... it will grow to something approaching $70,000... Now then, if by then you are still in a 15% tax bracket, you will then pay $10,500 in taxes on the amount you withdraw. Meanwhile the Roth money will have grown also, but will be  available with no taxes levied on the additional cash.

Also, the rules regarding withdrawals for Roth IRAs are more lenient, since you've already PAID the tax due on them.

Do the math for yourself before you decide one way or the other. Either way have their benefits depending on your specific circumstance.

Answer 6

I just rolled my old 401k into a Precious Metals IRA - but I'm sure you can roll it into any type of IRA, as long as you don't work for that company anymore.  I rolled mine over and invested it into real gold, that I own.  There weren't any penalties, and the money is still tax-deferred - it's just sitting in a bank in real gold that I own, instead of in stocks or mutual funds which are which are scary right now to say the least. My 401k hadn't made much money in years.   I read about Gold IRAs at www.safeasgold.com, and then I called them and talked to a very knowledgeable lady named Denise and she helped me do the transfer.  I would recommend her to anyone thinking about rolling over an old 401k in this market.   The way the dollar is going, I didn't want to put it in anything paid in dollars.