Accessing your money

[Tetto]

For those of you with significant Roth funds, accessing money for your living needs is pretty easy right? How about for those of you with 401k’s? I know with my plan you can only get it monthly, quarterly or yearly. It would be nice to pull it whenever I wanted to! I’m also hesitant doing the back door roth conversion, is take a 20% haircut to do that, correct?

Cheers

[meierlde]

Quote:

Originally Posted by Tetto For those of you with significant Roth funds, accessing money for your living needs is pretty easy right? How about for those of you with 401k’s? I know with my plan you can only get it monthly, quarterly or yearly. It would be nice to pull it whenever I wanted to! I’m also hesitant doing the back door roth conversion, is take a 20% haircut to do that, correct? Cheers

If your not working why not shop for a rollover IRA to send your 401k to, those are easy to do.

[Tetto]

Quote:

Originally Posted by meierlde If your not working why not shop for a rollover IRA to send your 401k to, those are easy to do.

I am still working and will for probably another 8-10 years. My question is just for planning/curiosity at this point, very focused on FI right now. So one answer is simply roll to a traditional or Roth after I retire?

[meierlde]

Quote:

Originally Posted by Tetto I am still working and will for probably another 8-10 years. My question is just for planning/curiosity at this point, very focused on FI right now. So one answer is simply roll to a traditional or Roth after I retire?

Yes if you roll to the appropriate kind of IRA depending on the kind of 401k you can eliminate a number of the rules sponsors put on 401ks. I recenlty rolled my megacorp 401k to an IRA and besides eliminating the rule that orders to sell company stock had to be in by 1 pm est, it also allowed making direct charitable withdrawls that count against the RMD which you can not do with a 401.

[HawkeyeNFO]

I just did this Friday. Called Vanguard and it was easy.

[jazz4cash]

Easy on both my 401k's., but if we had restricted access, I'd just move a year or so of expenses over to a liquid IRA.

[Sunset]

I just take out what I expect to spend in a year at one time when selling investments. Throw it into CD's while it waits to get spent.

For the dividends, I transfer it over once it has accumulated enough to bother.

I don't have any need for monthly income on a regular basis, as I can ignore the $8K sitting in my spending account.

[Alan]

Quote:

Originally Posted by Tetto For those of you with significant Roth funds, accessing money for your living needs is pretty easy right? How about for those of you with 401k’s? I know with my plan you can only get it monthly, quarterly or yearly. It would be nice to pull it whenever I wanted to! I’m also hesitant doing the back door roth conversion, is take a 20% haircut to do that, correct? Cheers

I don’t understand your 20% haircut comment. If you do a back door Roth it is because your income is too high to make a Roth contribution, so instead you make an after tax non deductible IRA contribution and immediately convert it to a Roth so it grows tax free.

Withdrawals from the Roth or IRA after age 59.5 is easy, anytime, any amount. I now withdraw dividends from my Roth as they are tax free in the UK as well as US.

[Tetto]

Quote:

Originally Posted by Alan I don’t understand your 20% haircut comment. If you do a back door Roth it is because your income is too high to make a Roth contribution, so instead you make an after tax non deductible IRA contribution and immediately convert it to a Roth so it grows tax free. Withdrawals from the Roth or IRA after age 59.5 is easy, anytime, any amount. I now withdraw dividends from my Roth as they are tax free in the UK as well as US.

Perhaps I’m confused; our combined income falls just below the income limit rules, so we do have a Roth. But I thought if I moved 401 monies to a roth, al “back door” method, it would trigger a 20 tax on my pre tax 401k monies. No 10% penalty though, or so I thought.

[VanWinkle]

Quote:

Originally Posted by Tetto Perhaps I’m confused; our combined income falls just below the income limit rules, so we do have a Roth. But I thought if I moved 401 monies to a roth, al “back door” method, it would trigger a 20 tax on my pre tax 401k monies. No 10% penalty though, or so I thought.

I don't think you are describing a "back door" conversion. You are describing a 401K to Roth IRA conversion. You will pay your current tax rate on the 401K money if it was tax deferred money to start with. If you are in the 25% tax brkt, and convert 401K to Roth, you will pay 25% on the conversion amount.

[Alan]

Quote:

Originally Posted by VanWinkle I don't think you are describing a "back door" conversion. You are describing a 401K to Roth IRA conversion. You will pay your current tax rate on the 401K money if it was tax deferred money to start with. If you are in the 25% tax brkt, and convert 401K to Roth, you will pay 25% on the conversion amount.

Exactly.

[cathy63]

Quote:

Originally Posted by Tetto Perhaps I’m confused; our combined income falls just below the income limit rules, so we do have a Roth. But I thought if I moved 401 monies to a roth, al “back door” method, it would trigger a 20 tax on my pre tax 401k monies. No 10% penalty though, or so I thought.

"Back door" conversion is an unofficial term for a loophole in the law that is used by people who earn too much to do a direct contribution to a Roth IRA. If you earn less than the income limit, then you will never need to use the "back door" loophole. Just make a direct contribution. (I'm assuming you're below the lower end of the limited range and can make a full contribution. If you're in the phase out range, a back door process might be better because it allows you to do the full amount.)

If you rollover 401K money to a Roth IRA, then that's a normal fully taxable conversion. There's no penalty. Just ordinary income tax, which might be more or less than 20%. It depends on how much you earn from other sources and how much is in the 401K. If you do the rollover in the year after you stop working and you have no other income, then some of the rollover will be taxed at 0%, some at 10%, some at 12%, some at 20%, etc, as you fill up each income bracket. When you get to that point, look at your financial situation and other income and consider whether it's better to rollover to a tIRA and then do one or more partial conversions to your Roth.

[Tetto]

Quote:

Originally Posted by cathy63 "Back door" conversion is an unofficial term for a loophole in the law that is used by people who earn too much to do a direct contribution to a Roth IRA. If you earn less than the income limit, then you will never need to use the "back door" loophole. Just make a direct contribution. (I'm assuming you're below the lower end of the limited range and can make a full contribution. If you're in the phase out range, a back door process might be better because it allows you to do the full amount.) If you rollover 401K money to a Roth IRA, then that's a normal fully taxable conversion. There's no penalty. Just ordinary income tax, which might be more or less than 20%. It depends on how much you earn from other sources and how much is in the 401K. If you do the rollover in the year after you stop working and you have no other income, then some of the rollover will be taxed at 0%, some at 10%, some at 12%, some at 20%, etc, as you fill up each income bracket. When you get to that point, look at your financial situation and other income and consider whether it's better to rollover to a tIRA and then do one or more partial conversions to your Roth.

Thank you, now I understand