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401K Conversion To IRA In A Living Trust
Old 06-14-2007, 08:02 PM   #1
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401K Conversion To IRA In A Living Trust

I have searched the forum and can't find the answer to my question.

I was told that I should convert my 401K to an IRA instead of keeping it in 401K after retirement. Something about the way distributions have to be taken by my beneficiary when I croak.
However my DW is the primary beneficiary of 401k and my living trust is secondary beneficiary (company form made me do it this way).
Instructions from lawyer was to have her disclaim the 401k in favor of my trust. She is co-trustee on my trust as I am on hers. Now the bucks would be in my trust, as we wanted it.

401K has some good choices for investments and fees that are in the .04 to .15 (for REIT) range. That is much lower than even Vanguard by 2/3.

Any one have any idea why I should convert 401K to IRA in this case then?
Am I even asking the right question?


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Old 06-15-2007, 06:29 AM   #2
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Hi Mega - I don't think the rollover would have a clear advantage in this case. The usual reasons to roll over a 401(k) are to give yourself more (and cheaper) investment options or to have the beneficiary be someone other than your spouse. Your funds have low expenses and your spouse is the bennie, so that isn't really a concern.

On the flip side, if you want to convert any of that money into a Roth IRA at some point, you'd have to do the rollover first.

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Old 06-15-2007, 07:19 AM   #3
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Mega---do you have children that you would like to be beneficiaries of your 401K should your spouse predecease you? My impression is that until this year if your children had inherited your 401K, in almost all cases the payout would have been in a lump sum and fully taxable. However if the 401K had been rolled over to an IRA before your death and these children listed as secondary beneficiaries on the IRA, they could inherit the IRA and would only have to take minimum required distributions based on their age so the IRA benefits could last for much longer. This may have been the reason you were told to rollover over the 401K into an IRA.

My impression is that this year 401K plans have been permitted to have children inherit the 401K (rollover into IRA??) without the payout being fully taxable as in the past. You would have to check with your particular 401K plan to be see if they changed their rules to allow it.

Leaving the funds in the 401K allows stronger protection against creditors than rolling them over to an IRA so if you do not need the funds right now there might be an advantage to leaving them there.

All of this stuff gets pretty complex in the details so you should probably doublecheck w/
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