Muck

[AtomicCEO]

My new job has no offering of 401K.

 

Contributing to a 401K pre-tax and with matching has always been a no-brainer for me. Free money? No taxes? I'm in!

 

But now I'm looking at IRAs to move the money into, and i'm trying to figure out how much of a hit I'm going to be taking. I can get a tax savings when I file my taxes... but I'll be taxed on it when I retire with a Roth? Is that exactly like a 401K except not sponsored by my employer?

 

Are IRAs like 529 where some places will charge more in fees? Is there some kind of guideline for how much to contribute to maximize my results and minimize my tax hit? Is there any state tax benefit if I find an IRA in-state?

 

Tell me everything you know, and don't confuse me with mumbo jumbo and gorrilla dust.

[dmarc117]

buy low, sell high

[detlef]

With the Roth you get no immediate tax break. You do not get to deduct that from you income. The benefit comes in the fact that you will never be taxed on it's growth when you take it out.

 

This contrasts to the traditional IRA where you get to deduct your contribution from your taxes that year but pay taxes on however much more it's worth when you retire. The thought being that, at that time your income (and thus your marginal tax rate) will likely be lower because you're no longer employed.

 

I can't tell you which works better for you. It depends a lot on how long till your retirement and how much you make right now.

Edited September 28, 2006 by detlef

[Ursa Majoris]

Obviously the biggest difference between any IRA and a 401k is the lack of an employer match i.e. no free money. Bummer.

[T_bone65]

Who

[dmarc117]

http://www.sasm.com/free/401irar.htm

[detlef]

I should also add that both types of IRAs share the benefit that the money is growing tax free. This allows it to compound faster because it's not being constantly slowed down by capital gains taxes that would occur every time a stock is sold. This really matters if you use Mutual Funds because there can be a lot of turnover within the fund that you don't know is happening but still have to pay taxes on.

[Dr. Love]

Obviously, an employer-matched 401(k) should be a first priority, as it's, as Atomic said, free money. However, the Roth is superior to a non-employer matched 401(k) or traditional IRA for young people, as the initial tax hit on the contribution is made up for in the long run by the tax-free growth.

 

Obviously, there's some age crossover point where a traditional IRA is a better deal than a Roth. That crossover point is variable, depending on your current tax burden, your assumed growth rate, and likely other factors.

[Jumpin Johnies]

Obviously, an employer-matched 401(k) should be a first priority, as it's, as Atomic said, free money. However, the Roth is superior to a non-employer matched 401(k) or traditional IRA for young people, as the initial tax hit on the contribution is made up for in the long run by the tax-free growth.

 

Obviously, there's some age crossover point where a traditional IRA is a better deal than a Roth. That crossover point is variable, depending on your current tax burden, your assumed growth rate, and likely other factors.

 

good post

[The Holy Roller]

Obviously the biggest difference between any IRA and a 401k is the lack of an employer match i.e. no free money. Bummer.

 

 

And long term security. 401s are taking some hits. Depending on who has the money.

[AtomicCEO]

Thanks for the info.

 

Another question... Am I taxed on money from a 401K that is rolled into a Roth? Is there any complication there?

 

If so, Is there any way to leave my accrued balance in my old 401K even though I don't work for that company any more?

[detlef]

Thanks for the info.

 

Another question... Am I taxed on money from a 401K that is rolled into a Roth? Is there any complication there?

 

If so, Is there any way to leave my accrued balance in my old 401K even though I don't work for that company any more?

 

I recall when my wife converted her traditional IRAs to Roth IRAs she had to pay the taxes on it. Otherwise you'd be having your cake and eating it to. I'd imagine the same holds for 401ks.

[BYoder]

Thanks for the info.

 

Another question... Am I taxed on money from a 401K that is rolled into a Roth? Is there any complication there?

 

If so, Is there any way to leave my accrued balance in my old 401K even though I don't work for that company any more?

 

If you roll the 401K into a Roth IRA then yes you will be taxed on the amount that is transferred. If you roll the money in your 401K into a Traditional IRA then you shouldn't be taxed until the money is withdrawn.

 

To answer your second question, I don't see why there would be a problem leaving the money where it is, but you may want to check with your former company.

[H8tank]

Spend it now, can't take it with you when you die.

[Azazello1313]

Thanks for the info.

 

Another question... Am I taxed on money from a 401K that is rolled into a Roth? Is there any complication there?

 

If so, Is there any way to leave my accrued balance in my old 401K even though I don't work for that company any more?

 

 

i think what you should probably do is roll your old 401k into a traditional IRA to avoid the tax hit. then maybe start up a new roth IRA and start contributing regularly to that.