Do you recommend an IRA Rollover for 401K?

Question

Im debating on getting an IRA Rollover when i quit my job this week. Or I can withdraw the entire amount and do a money market account. I need to be able to withdraw from the fund periodically.

Answer 1

Roll the whole 401k over to an IRA.  Absolutely do not take the funds.  You will be subject to the 10% penalty and income tax withholding for the entire amount -- about 40%.

You can make withdrawals from an IRA but you will have to pay the penalty and tax withholding.  Only take what you absolutely have to have.  That early withdrawal penalty takes a pretty big bite out of the moeny.

Answer 2

Are you over 59 1/2?  If not, it will be very expensive to touch this money.  It is fine to roll it over but then keep your hands off it.  It is for your retirement.

If you are at least 55 you can take it by paying the tax and not have a 10% penalty on top of the tax.  

If it is a large amount and you want to draw it like an annuity, you can roll it to an IRA and then set it up for payments based on your life expectancy.  No penalty will apply but you'll still have to pay the tax on what you withdraw each year.

Answer 3

I retired about two years ago. An IRA rollover is not an all or nothing decision. If you like your existing 401K plan you can roll over a portion of it to an IRA. I've kept some money in my 401K and have done three separate IRA rollovers to different companies to give me more investment options.

Make sure the IRA rollover is done correctly. What you want is a "trustee-to-trustee" transfer, not a check made out in your name alone.

The company receiving the new IRA should be helpful to make sure everything is done correctly so you do not face any taxes right away.

Another tax tip is to try not to withdraw any money right away because you will be in a higher tax bracket. Any withdrawals should be delayed until the first year after you have left the full time job. When you are a full time student your tax bracket might be close to zero. So if you leave your full time job in November or December, try to hold off until January.

It is true that you will be liable for a 10% penalty if you are under 59.5 years old, but it may be worth it if you can become an Rn sooner.

I run an investment blog. Some of the recommendations are for IRA investors,

George Spritzer

Quant Investor    http://quantinvestor.blogspot.com

Answer 4

Yes rolling this into an IRA is the best thing.  If you pull it out and put it into a Money Market you will be hit with taxes big time. There will be a 10% penalty, then taxed at your income rate for whatever you withdraw.  Also, whatever you withdraw will count as income, so if you pull out a lot of money you could end up in a higher tax bracket than usual.  Rolling into an IRA will avoid this.  Why do you need to be able to pull from this periodically?