Graduated Learning: Life after College

I got my degree, I got a job…now what?

Converting my IRA to a Roth IRA December 16, 2012

Filed under: Personal Finance — Stephanie @ 9:03 pm
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Back when I was laid off from my old job in 2008, I took the money that was in my 401(k) and rolled it over into an IRA.  And since 2008, I’ve had my Rollover IRA just sort of sitting there.

I started the rollover IRA with $5,026.80

I bought a bit of a target date fund (2045, so it would be different from the 2050 fund in my Roth…because I thought that would be diversifying…whoops!) and kept the rest in the Cash/Money Market fund.  When it started, the return on the money market was around 2.4%.  Now it’s 0.01%.  Bleh.  And then I never touched the account again.

So, with the ups and downs of the market, after 4 years, as of this posting, I now have $5,308.69 in that account.  So my money has grown ~5.6% total in the past 4 years.  It’s not terrible.  Especially considering the financial crash.  But it’s not fantastic.

But here’s the thing.  I want to do more with this money.  Not crazy “invest in the next bubble” more.  Just put it into something normal like an index fund.  And apparently most low-cost index funds available to me in my IRA have minimum investments of $10k.  Which is hard to do if you only have $5k.  So I’d like to roll over my IRA into my Roth IRA.

Another reason I want to roll my IRA over is because I assume my 401(k) will remain larger than my Roth IRA, since 401(k) plans have higher contribution limits, AND my company puts money in through a match and a defined contribution plan.  So I’d like to be able to diversify my tax liability when I retire (you know, have more options on what distributions to take and when), and so the more I have in my Roth, the better!

Lastly, there’s the taxes themselves.  Everyone’s freaking out about the Fiscal Cliff. I’m honestly not sure what tax rates might change to in 2013.  They could stay the same.  Or they could increase due to phasing out of tax cuts we’ve enjoyed for years.  I honestly don’t know.  What I do know is that if any of the tax rates go up, I might as well convert now, just in case.  Plus, I’m still in a pretty low tax bracket at this point in my life, so I might as well take advantage of these rates as well.  (yeah it’s only taxes on a tiny bit of money.  So I might as well do it now!  And I guess it wouldn’t matter much either way).

As a reminder, I’m not a financial advisor.  I’m just sorting out my personal finance thoughts on this blog.  So please don’t take this as financial advice.  I mean, you can still convert an IRA to a Roth IRA if you want.  But talk to your own tax/money people!

Saying that, here is something I learned from my tax/money people (i.e. customer service at Fidelity):

“At the time of your conversion, you will have the option to have taxes withheld. Many investors choose to pay the taxes due on the conversion from another source, as any taxes withheld from the conversion will be considered an IRA distribution and will be subject to any applicable taxes and an early withdrawal penalty if you are under the age of 59 1/2.”

I am planning on paying the taxes using another source.  The taxes I have to pay on this conversion I will pay for out of my regular bank accounts.  The other (not preferred) option is to pay the taxes out of the money you’re converting…which just seems like a horrible idea, because you have to pay a withdrawal penalty for that amount, and you’re lowering the amount of money you’re putting into your retirement account.  I guess some people do it if they have no other option.  Though I’ve also heard of people only partially converting to a Roth so that they can pay taxes on it bit by bit.

As a reminder:  Converting or contributing to a Roth IRA isn’t for everyone.  Depending on your income, your age, your tax liabilities, and plenty of other issues, you might stick with a traditional IRA or try something different.

What tax-related steps are you taking before the end of the year?  Is the drama over the Fiscal Cliff impacting your decisions?  Have you ever converted one retirement account type to another?  Do you agree with my decision to convert my IRA to go into my Roth IRA?

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Layoff Survival Guide: What to do with your 401(k) June 19, 2009

Filed under: Careers,Personal Finance — Stephanie @ 8:06 pm
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A good friend of mine recently got laid off.  And, since I went through this about a year ago, I’ve got plenty of advice. 😛

I’ve decided to start a little series, the Layoff Survival Guide.  I’ll be answering questions that she has, and will be more than happy to answer any questions you have.  I’m not a professional financial adviser or career coach, but I’ve learned a lot about surviving a layoff, and the transitions and decisions that come with it.  Plus I might have some advice on finding a new job.  I already have a few posts for some of these topics (linked to in previous sentence), but I don’t mind focusing on a specific question or topic.

So, ask away!  I’ll try my best to find the information you are looking for!

One of the questions my friend sent me was:  What do I do with my 401(k)?

I realize that  plenty of people have posted about what to do with your 401(k) after you leave your job (either voluntarily or involuntarily).  A really good guest post by The Working Dollar at  Get Rich Slowly describing  your options can be found here.

Still, here’s my own view of your options:

Keep your money where it is.  This isn’t the option for everyone.  In fact, it depends on the rules of your company and the firm they run the 401(k) through.  There’s usually a certain amount of money you need to have in the account in order to keep it there.  If you’re happy with your portfolio there, and you are allowed to keep your money there, then you can go ahead and keep it around.  If you aren’t able to keep your money there, or you don’t like how your money is invested, or if they’ll start charging a fee or impose other rules you’re not comfortable with, then you might want to consider the other options.  The benefit to keeping it (if you can) would be that you wouldn’t have to “sell” your funds, and could hope to make back the losses from the crummy stock market performance.  When my boyfriend left his last job, he just kept all his investments at the old company, since he actually had really good investment options there, whereas I was not happy with my options after I got laid off, so I rolled my 401(k) over.

Roll over to an IRA (or Roth IRA).  If you can’t (or don’t want to) keep your money where it is, you can roll it over to an IRA.  Most investment companies (like Fidelity, Vanguard, or T. Rowe Price) (click those to go directly to their rollover sites) have an option to roll your money over from your 401(k) into an IRA.  The important thing to remember here is that you should check with both the organization that has your old 401(k) and the company that you want to roll over your money with, to see how you can move the money without incurring fees or taxes.  They’ll tell you what to do!  You can now also roll over your money into a Roth IRA, but will need to deal with the taxes there (pre-tax money to post-tax money).  The benefit of having an IRA is that you have more choices on what to do with your money.  It’s an investment vehicle, where you can buy all sorts of different investments…not just the 10 or so mutual funds that your company lists for you.  Another good post about IRAs (from Get Rich Slowly) can be found here.

You also have the option to Roll over your old 401(k) into a new employer sponsored plan.  I don’t know as much about this option, but it seems that it would require you to have your new job already.  You’d need to be able to keep your retirement savings somewhere (i.e. the old 401(k)) while you wait for your new plan to take effect.

And, finally, my least favorite option, Cash it out.  I don’t recommend this unless you have a really good reason to.  You’ll be hit with taxes all at once, and will likely have to face fees as well, quickly dwindling down the actual amount you will get.

What did I do?  Since I was not happy with my investments in my old 401(k), I decided to roll my money over to an IRA.  And since I already had a Roth IRA at Fidelity, I decided to open a rollover IRA there.  It was pretty darn easy, and they answered all the questions and concerns I had.  Plus they have a lot of investment options, many of which don’t require fees.  I’ve heard good things of lots of the other investment companies, so take a look around your options before committing to a specific company.

Vanguard also lays out the pros and cons of each option (as does Fidelity).  Like I said before, this information is everywhere.  But I just figured I’d lay it out again for anyone looking for some guidance.

Have any questions about what I wrote?  Suggestions?  Corrections?  I don’t claim to be a financial adviser or expert, so hopefully you’ll take what I’ve written and run with it (and if there are mistakes, I’ll be sure to edit it to reflect corrections you submit).

Also, what other questions do you have about the transition from employment to unemployment?  I’ll be answering them here!  Leave a comment or email me the question at graduatedlearning@gmail.com.

 

Rolling over my 401(k), and other transitions May 16, 2008

Well, I got the official paperwork today telling me about all the options I have for the money in my former employer’s 401(k) plan.  They’ve given me plenty of options, some of which I think are not so good (i.e. taking the money out for myself), and the two that I’m mostly considering:  roll over to an IRA or roll over to a new 401(k) plan.  The problem with the latter option is that I don’t have a new job yet, and I don’t know if I’d even be able to roll over the 401(k) with them (it differs for different companies).  So it seems that my best bet is to open a Traditional IRA and roll my 401(k) into that.

I’m going to open up an IRA with the same company that I have my Roth IRA with, and presumably buy a life-cycle/age-based/target-date fund with a target date of 2050 or so.  My one concern is, even though these funds are supposedly diversified, I am thinking of investing in both IRAs in that fund…that’s not very diversified!  However, there are minimums for purchasing a fund in many cases, so perhaps I’d just let my money grow using those funds (and continuing to invest in my Roth IRA), and slowly build until I have more money to spend on different funds.

At any rate, I’m thinking it’s still my plan to roll over to an IRA.  I’m a bit ticked off that my old company’s 401(k) company is going to charge me a $40 processing fee, but hey, not much I can do.  They charge it for pretty much every option that I would do.

As for my other transitions (since I got laid off), I’ve filed for unemployment and been informed of how much I’ll be earning each week, and of course, looking for a new job.  And as I look at different job postings, I’m starting to understand what I do and don’t want to be doing.  This is a pretty helpful development, since I was so overwhelmed initially thinking of all the different career paths I could follow.

I’ll keep you updated!