Rethink Your Rollover

Posts Tagged ‘401k’

ira penalty free withdrawals

Question: More free tax advice re penalty for “early withdrawal on savings”?

I really don’t think my taxes are complex enough to take them to a professional; I’ve already pretty much established that I cannot beat the standard deduction. However, I also feel I am in a bit of a grey zone when I read some of the rules in the book. For “penalty on early withdrawal on savings” can I claim the 10% I paid last year for raping & pillaging my IRA? I’m pretty sure that I cannot, but it never hurts to find out from people who know about this kind of stuff. Thank you.

Answer: You’re correct, you can’t include the penalty for early withdrawal of your IRA in the adjustments area of your return. There are a few exceptions though to having to pay the penalty, so be sure to research those first to see if you qualify for any of them.

401k Rollover Don’t Leave It Behind

ira short term gains

Question: capital gains within traditional ira?

im 30 yrs old right now. i know about long term and short term capital gain tax. anything under a year is short term.

now my question is this. if i buy a stock and sell it under a year thru my traditional ira account. do i pay short term or long term capital gain tax? or it doesnt apply since i wont cash out my traditional ira when im 59 and half and then i pay the long term gain which is 15%?

someone please let me know. thx in advance.
thx for all ur answers.

to the poster that said stocks dont belong with traditional ira is wrong. it depend on ur age…since im still young i can still take alot of risk. and stock in the long run will earn more than some crappy mutual funds.

i guess this posters is a young grasshopper and doesnt know it all yet.

Answer: Great question. I’m not sure but I hope it’s still relevent by the time we all start drawing down our retirement accounts. I’ll be doing it about 20 years before you. Capital gains tax is at risk of being tampered with if not abolished by our law makers. It’s a critical issue to most of us saving for retirement so keep your eye on the political ball when it comes time for elections and voting. Losing that 15% tax level to higher taxes could require twice the savings you are planning on needing now. That will destroy many of us. Stay awake in the voting booth.

Hunger part 6

ira vs 401k vs roth

Question: Whats the difference and advantages of a 401k vs Roth IRA?

While I know the tax differences between a 401k and Roth IRA, why do most experts support the idea of putting excess retirement money into the Roth IRA?

Lets say I can save up $8000 to my retirement, and my company does zero company matching to the 401k. Financial Experts suggest putting it into the Roth, but I’m having trouble understanding why? Isn’t reducing my taxes a better deal? What’s the advantage of a Roth over a 401k?

PS. I’m single, and I want to retire with a comfortable nest-egg. Which means I’m willing to return to my college-budget lifestyle to save big.

Answer: Well it’s a matter of tax now vs. tax later.
The 401k and 403b will reduce your taxes slightly now, but you’ll have to pay taxes on all the money you get out when you retire.
A Roth will force you to pay your normal taxes now, but will come out in the end tax free.

Tax Free!

Let’s say you pay 25% on your income tax now on the $100 a month you put towards your Roth.
in 40 yrs with an 8% annual return you’d be at $261,855.90 and have paid $12000 in income tax.

Putting that $100 directly into a 401k with no employer contribution you’d be looking at have $349,141.20 in your account, but having to pay taxes on it when you take it out, leaving you at the end of the day wi $261,855.90 but having paid $87285.30 to the gov’t.

It really make little difference except in that lean month where that extra $100 that gets taken out of your account means you end up over drafting your checking account where if you had that extra $100 in you pocket you could stall a day or two with you Roth contribution and not get hit for the overdrafts…

401(k) & IRA: An Introduction to Tax Free Retirement Accounts – Bills.com Video Blog

ira mandatory withdrawal

Question: IRA and 401 K Mandatory Withdrawals for 2008. Tax Status.?

McCain and Obama suggested deferring the required withdrawal of assets from retirement accounts.
Is anyone in congress proposing a bill to give seniors Relief in 2008?
Yes wartz I said McCain and Obama both proposed it. Has anyone in congress actually initiated a bill? Who?
Judy. What you probably don’t understand is that the tax on funds withdrawn at the end of 2008 is based on the maket value at the beginning of the year. This makes mandatory withdrawals a double wammy for seniors. Sell at 65% tax at 100%.
Sale of non sheltered stocks are taxed at date of sale and at a capital gains tax rate. (triple wammy)
vb. Sorry. My comment about non sheltered stock was the fact that the tax on those is at 15% capital gains rate at the time of sale. The tax on 401 k stock (forced) sales is at your income tax rate at their value at the beginning of the year. (35% higher) Tripple wammy!

Answer: You are skewing the issue.

Let's say your life expectancy was 10 years. Thus your RMD (required minimum distribution) would be 1/10th of your account balance on 12/31/2007. If you hadn't taken any of the money out before the market crashed, you may feel like you are being forced to take 20% out and depleting this resource. The actual tax is still based on the dollar amount taken out, so the tax bill is NOT higher than you estimated at the beginning of the year. Thus saying "sell at 65%, tax at 100%" is mathematically wrong.

Your added comment about selling "non-sheltered stocks" being a 3rd whammy makes no sense--unless you are complaining that you now have a loss and can't even take it after the first $3000.

ira vs annuity

Question: Traditional IRA CD vs. annuity?

My traditional IRA CD matured this week, and the bank is pushing me to invest in a fixed annuity account via a large insurance corporation. This account is not guaranteed by FDIC but is secured 100% by Transamerica Financial Life Insurance Co. The difference is the interest rate. The traditional IRA interest is currently 3.3% for 3 years, and the insurance-based IRA CD is 3.55% for 5 years. If I want to be sure these funds are absolutely safe, which route should I take? How safe would the annuity be? Thanks!

Answer: Carol,

As others have pointed out, the bank officer makes more commission on an insurance annuity than rolling over your CD (which has no commission).

Shop around for a better CD rate. Federal Credit Unions pay very well and you should check out bankrate.com for banks close to you or you can buy a CD by mail (I prefer a local bank myself). Even brokerage firms like TD Ameritrade and Charles Schwab have IRA FDIC insured CDs.

Note: The IRS allows 60 days to take the proceeds from the old CD and deposit the money into a new CD somewhere else so don't feel any pressure whatsoever from your bank.

Fixed Index Annuity (FIA) Concept