Ask MetaFilter questions tagged with ira

Investing Outside of a Tax-Sheltered Account

mahoganyslide — Wed, 25 Nov 2009 22:46:37 -0800

Is it worth it for a student who makes less than $10,000/year to invest outside of a tax-sheltered account? I recently opened a Roth IRA (with a target date retirement fund). I am a student and make less than $10,000/year so my contributions to the Roth are rather modest. Although I recognize the value of slowly investing towards retirement, I cannot help but feel an itch. The prospect of using my savings to make more money for short-term use is tempting.

I understand the risks involved in investing. However, I've recently been thinking about investing in the Vanguard STAR fund (low minimum amount, no annual fees, moderate risk) outside of a tax-sheltered account. I'm not expecting a high rate of return, just a something that is above the current 1.xx% rate I receive from a high-yield online savings account. I envision myself being a lazy investor who will settle for a lower rate of return and spend valuable time doing the things I love. But, what are the ramifications of doing so?

For example, would it be worth it to invest the minimum amount for the Vanguard STAR fund? What would be the tax ramifications (e.g. capital gains tax...)? Am I being naive in thinking that I can simply invest some money in January, subsequently contribute a small amount over the months, and take out a couple hundred bucks in December?

I am aware that there are other funds out there with higher rates of return than the Vanguard STAR, but I can only afford this particular fund's minimum at the moment. I will definitely reallocate once I've contributed past the minimum of other funds. My question, however, is what can I reasonably expect as a small-fish investor in his early 20's who is still in college?

Can I use a retirement fund to buy out startup stock options?

Anonymous — Tue, 17 Nov 2009 19:25:12 -0800

I'm about to leave a startup to go to a different company, and I need some help figuring out how to handle my stock options. I currently work for a startup at which I have accrued X stock options at a price of $Y. From the date I leave, I have 90 days to buy out the options. I don't currently have the cash on hand to do this, but I do have approximately X*$Y in my 401k, which I would have to roll over either to the new company's 401k or to an IRA.

I think I heard that you can buy out options like this in a retirement fund, but if this is true I need to better understand the details and mechanics of it. Is anyone familiar with this situation who can tell me what to look for? Are there specific types of IRAs or anything like that which would give me more flexibility? What do I need to know?

For what it's worth, I do believe the startup will succeed; I'm leaving because my job there is not what I want. Also, I'm in my mid-twenties. So I am not concerned about using my (currently minimal) retirement fund to buy these out.

What to do with a leftover 401k account?

bookdragoness — Sun, 30 Aug 2009 17:27:27 -0800

What to do with a 'leftover' 401k account? I worked as an intern/co-op for a cumulative 9 months during college at a company that had 401k matching, which I took advantage of while I was there. I've since graduated and moved on to work for another company that does 401k matching and have one there as well.

I have about $1500 in the first 401k account that has been sitting there for the last few years but that I tend to forget about. I am fully vested and don't want to just withdraw it and pay the tax penalty.

I've done basic research into what to do with a 401k, so know my options, but don't really know what makes more sense to do.

Should I, given the market:
(A) Leave it where it is for now
(B) Roll it over into my current 401k
(C) Roll it over into a traditional IRA (and if so, recommendations for an IRA company?)
(D) None of the above (and if so, what?)

I am 24, female, in Arizona, and recently got married (but don't plan on having kids for a couple more years), if that helps.

And yes, YANATP/YANMTP (tax professional). Thanks in advance for the Hive Mind's input!

Finding "hidden" things.

joshgates — Sun, 16 Aug 2009 19:37:18 -0800

How do you locate the safety deposit box and 401k/IRA of a deceased relative who you've had little contact with lately? The situation is a bit unusual and since I'm having trouble coming up with the answers on my own, I thought I'd query the hivemind.

A few years ago my parents got a divorce, my dad took it particularly hard to the point where he pushed away anyone that he had contact with, including his family, and moved to China. A couple weeks ago he passed away over there from a sudden illness and I've been busy with making arrangements for what needs to be done.

Tonight I was going back through the few emails we'd sent to each other over the last couple years and in several of them he'd referenced a safety deposit box and a 401k plan that he'd rolled over into another one to keep away from my mother. I suspect that he'd actually put it into an IRA as at the time he didn't have a job that offered a 401k.

The only idea that I've been able to come up with is to call all the banks in the area and inquire. I'm quite willing to do that should no other options be available.

Any suggestions and ideas are much appreciated.

As a side note, a few months ago he actually remarried, his wife is unable to get a visa to come back over to the US and I'm not sure how that'd affect things.

Moneyfilter: Withdraw from my 401K for my downpayment?

Anonymous — Fri, 12 Jun 2009 20:10:45 -0800

Is it a bad idea to use money withdrawn from a IRA for buying a house? I want to buy a home but I'm having trouble with the down payment and closing costs and I've got a 401K that's just kinda sitting there from my last job. I've found a older house on the market for about $45K, It needs some work done but I didnt see anything that jumped out at me as being show stoppers. I work and make a decent salary, Not quite 40K a year. My big problem is my savings amount to about $1500 in the bank and thats not enough for the 3.5% down I need or the closing costs which are estimated to be in the $3-5K range currently. My credit score is good enough to do the whole 203K loan otherwise according to my agent.

I have $31K in a 401K I cant access unless I transfer it to an IRA due to the 401K being from my previous employer, Yeah I'm dumb and should have done something about it 8 months ago when I left.

Anon because I dont want to share info about my worth with the world under my name. Throw away email 401korbust@gmail.com.

Can I keep some of the money?

notned — Tue, 19 May 2009 08:28:58 -0800

PARS distribution questions -- I taught part-time for 10 years. Recently I realized that life is too short for doing that and so I've stopped. The school notified the PARS retirement and they want to distribute to me. The estimated taxable portion is $3109 and the estimated non-taxable is $2817. Can I roll over to a traditional IRA with the $3109 and "spend' or put the $2817 into savings for a rainy day? What am I not thinking of?

Reporting rollover from IRA to 401k on U.S. Taxes

Anonymous — Mon, 11 May 2009 11:30:42 -0800

US Tax Filter: How do I report an asset transfer/rollover from an IRA into a 401k to the IRS so that we are not taxed for the amount? I know you are not my tax advisor. I do the taxes for for myself and my husband. In 2007, he neglected to give me a tax form and I filed our taxes incorrectly as a result. The IRS just sent me a letter, and I have 3 weeks to figure this out and fill out a 1040x for that year. I would like to do this myself if at all possible.

My husband had a 401k from a previous job that he wanted to roll into the 401k at his current employer. The previous one never did very well and the current one was making money. In addition, it was a fairly small amount, just under $15,000, and we were afraid we would lose track of it throughout the years. By the time he was able to get to this, the previous company had been sold, and this 401k was converted to a simple IRA. In retrospect, I realize he should have left the money in this IRA, but the momentum was already there to get this into his current employer's plan. In 2007, he got a check from the administrators of the IRA, and wrote a check for the same amount to his current retirement plan. He had about an inch of paperwork related to this, and feeling overwhelmed, he asked his HR department if there was anything else he needed to do, they said "no" and he stuck it all in the file cabinet. Taking tax advice from his employer's HR department is not a good thing, no? Especially since they didn't know they were giving out tax advice?

We got a letter Friday from the IRS saying that this was income we neglected to report, and that we owe back taxes and penalties of almost $7000. Digging around in our files, I found a 1099-R from AIG, the previous admin of the IRA, showing a gross distribution of the entire amount on line 1, and that the entire amount is taxable, per line 2a. He found a Confirmation of Asset Transfer/Rollover from Vanguard, the admin of his current 401k, for that same amount. How should I have reported this? I am assuming that we would not owe taxes on this since 401k assets are taxable when they are cashed out far in the future. However, I can't find anything on the IRS site or anywhere else reputable about how to report this. Apparently we are the only people in the world who have ever cashed out an IRA and put the money into a 401k.

Ultimately, what I would like to do is file a 1040x the way I should have filed the 1040 in 2007, then appeal the notice from the IRS and use a copy of the 1040x as documentation as to why we don't owe the taxes.

You can also email me at whining.about.taxes@gmail.com

How to start a nest egg?

marclar — Mon, 04 May 2009 17:57:14 -0800

Now that I have a little extra money, how should I start saving it? (I don't have a 401(k)) For instance, what's an IRA and why should I care? Or what about this thread talks about high-yield savings? Or this one about index funds? While I *am* young, I'm mostly concerned with creating a nest egg, not playing the stock market (read: I'm more interested in low-risk that will hopefully allow me to afford a family and eventually retire). Thanks!

What's my best bet in moving a Rollover IRA to another bank/brokerage firm with my negative net worth?

blue andrea — Mon, 20 Apr 2009 15:36:07 -0800

I need to know what my options are for moving this thing, given that I have a negative net worth. Can I roll it into another brokerage-style Rollover IRA at a brokerage firm, not a bank, and avoid the money laundering law stuff? Or am I relegated to Bank IRAs until I'm out of school debt? Do I suck it up and take the $75/month hit until I can start depositing money again (I don't know when that will be), and hope that the investments make up the difference in the long run? I haven't lost as much as most in my portfolio, and I know I have time to make up the losses, the monthly fee just seems like an unnecessary loss I should be able to avoid. My Rollover IRA (brokerage, not CD/money market) is with Schwab, and is a product of a 401(k) account I had through them ages back that I converted when I left the company. The monthly fee ($75) is waved if you deposit at least $75 into the account every month. When I had a job, and for the past 8 months this wasn't a problem, but money is tighter now. This means that if I keep my account here, I'll be losing $900/year in fees.

My original plan was to move the money into a Rollover IRA at Bank of America, since that's where I keep my other stuff, and they have no-fee brokerage IRAs. However, from reading articles on AskMeFi and elsewhere, a bank sounds like not the best plan. In any case, in investigating the process, I found that the application asked for my net worth; I have a negative net worth because of school loans, and the field only accepts positive numbers. The customer service rep I chatted with online told me that I can't open a brokerage retirement account with a negative net worth because of money laundering laws. He said my best bet was a Bank IRA (CD/money market options).

So what's my best bet?

Where should I put an inherited IRA?

theora55 — Sat, 07 Mar 2009 06:58:10 -0800

I inherited an IRA (under 50 K). Because the person who contributed all the money is dead, I am required to take annual distributions. It's currently managed at a big bank, for an annual percentage, plus fees. I'd prefer to have it local, low-cost. Who might offer this, plus managing the distribution, at very low cost? What IRS reporting is required - can I do that myself? The current manager keeps it more active than I think is necessary, and it seems too small for that level of management. The calculation about how much to take out seems pretty straightforward.

IRA to RIRA Advice

JPowers — Mon, 16 Feb 2009 19:26:04 -0800

My Dad wants to roll his IRA over to an RIRA and use the money to buy my brother a townhouse. Is this a bad idea? The Facts

The Facts: My dad wants to roll over an Individual Retirement Account (IRA) to a Real Estate IRA (RIRA). He will use the RIRA to purchase a townhouse for a total cost of $220,000 (this will be the only asset owned by the RIRA). All RIRA financial commitments, debits, and credits shall be recorded on the RIRA account ledgers. There will be no mixing of RIRA funds and personal funds. He plans to rent the townhouse to my brother for $1,554 per month. The rent will be calculated as shown here. In a nut shell, my brother will pay rent each month equal to the reoccurring monthly expenses (tax, insurance, etc.) plus 3% interest.

The Questions

- Would this be considered a prohibited transaction by the IRA?

- When the townhouse is eventually sold and the funds are in the RIRA, can my Dad roll them over to an IRA?

- Can he take distributions from the RIRA?

- Can he manage the rental or does it have to be someone else? In other words, can he be the one responsible for finding tenants, arranging leases, getting insurance, making repairs, or would this be prohibited by the IRS?

- Bottomline: Is this a bad idea? Is this too risky? What are the pitfalls that you see?

Thanks in advance for any help you can give us.

To Roth or not to Roth?

gnash — Mon, 09 Feb 2009 12:06:36 -0800

Should I convert my Traditional IRA to Roth IRA now or ever? What are the criteria for moving from a Traditional IRA to a Roth IRA? Is it something people suggest? Given the market downturn it seems like it might be good timing to make such a move, but the feedback I have been given is mixed, so I humbly turn to the hive mind for answers.

For arguments sake say I have over $100k and I am 30 years away from retirement. I anticipate at least 6% return a year average but believe it will be higher given history and other factors.

Does one reduce risk by investing in mutual funds held by different groups?

grouse — Mon, 09 Feb 2009 08:57:48 -0800

Does one reduce risk by investing in mutual funds held by different groups? If I invest in an S&P 500 index fund with both Fidelity and Vanguard is that better than just going with Vanguard? Or is the SIPC protection such that I need not worry about such things? Many responders to this question seemed to indicate having your accounts all in one place would be a good idea because it eases management. That is definitely attractive.

Learning to protect my retirement fund.

mecran01 — Mon, 22 Dec 2008 10:59:31 -0800

Like many people, my retirement fund took a hit when the market crashed. My question is--who should I have been reading before this happened? Who was the consistent voice of sanity telling everyone, "Hey, stick your retirement in something safe RIGHT NOW." Burn me once.

Books about the IRA and the "Troubles"

proj — Sun, 14 Dec 2008 15:20:08 -0800

What are the best -- in terms of compelling writing and in terms of comprehensiveness -- books about the "Troubles" between Ireland and the UK over the past 50 or so years? Bonus points if available on Kindle. AskMe produced some results on Irish history in general but not specifically the Troubles.

Lesser of two tax burdens?

al_fresco — Sat, 13 Dec 2008 15:40:17 -0800

My partner and I need to pay off some debt, and unfortunately we need to dip into our retirement funds. Our tax accountant is on vacation and we can't find the answer to our question. We have two sources–either sell some stock or cash out a couple of short-term IRA CDs. Which is the lesser of two evils? The service charge on either transaction would be about the same (~$50). We understand that the painful part would come in the form of the taxes on the amount we receive. Is there a difference in how the two types of transactions would be taxed? If we took a theoretical amount of $10k from either transaction, which would be taxed at a higher rate? What is the tax rate on either of these. I'm in California, and we'd need to do this before the end of 2008. If it matters, the money would go directly to pay off credit cards, car, student loans.

And it always makes sense to pay off debt before saving for retirement, right? (Higher interest rate on debt than retirement fund, blah blah). Oh, and we're living paycheck to paycheck.

Thanks in advance!

How should I invest for retirement?

Anonymous — Tue, 02 Dec 2008 16:11:22 -0800

I am trying to figure out how to invest money for retirement and otherwise. I am in my late 20s, earn $55,000 annually, have no debt, and about $90,000 in savings. I am currently putting 5% of my salary into a 403(b) which is the maximum amount my employer will match. I know I should put about $20,000 into an emergency fund. I will probably leave my current city in 3-5 years. At that point I am likely to need to buy a car so I plan to keep another $20,000 in savings. That leaves $50,000. I saw an adviser from Vanguard who said that if I wanted to invest that money the best thing to do would be to max out a Roth IRA account, and then max out my 403(b) contribution and get money for living expenses out of the savings until the amount decreases. This also means I will get some dollar cost averaging through the periodic extra contribution.

The other thing to consider is that when I move I might want to buy a house, and if the money is all locked away in tax-free retirement accounts I may not be able to get to it for a down payment, or only with tax penalties. Knowing this, is it a better idea to invest the money through something

Anonymous because I don't want everyone to know how much money I make or have saved. You can write me at momoney.moproblems.08 on gmail.

Gerard Sands

lottie — Tue, 11 Nov 2008 20:49:05 -0800

What ever happened to Gerard Sands, the son of Bobby Sands the IRA Hunger Striker who died in the Maze? What ever became of him. Did he just grow up and live a quiet life? He's pictured here at seven years of age at his Dad's funeral.

Has anyone in Northern Ireland ever interviewed him, or written about him? Just curious as a person who reads a lot about the struggles. Google turns up nothing.

What to do with my money?

atayah — Wed, 29 Oct 2008 06:28:16 -0800

New to 403(b)s... should I do an IRA instead? I just switched to a nonprofit job and was given the option of opening a 403(b) account with a financial institution of my choice. I'm fairly young (27), so would be looking for moderately aggressive investments with low fees. TIAA-CREF seems to be well-regarded, but I'm wondering what people's experiences have been (good or bad). My last job was with a for-profit employer that handled my 401k, so I don't really have any experience with a financial institution.

I'm also wondering whether or not I should think about investing instead in a Roth IRA, which would allow me to make a withdrawal for a downpayment for a house later on. If I invested in a Roth IRA, I know I'd have to pay taxes now on the investment, but I'm wondering if it would be offset since I could invest in a house much earlier than if I invested only in a tax-deferred 403(b) account.

I know You Are Not My Financial Advisor, and my partner and I are planning to see one in the near future.

Is it possible to time a rollover?

quadog — Tue, 30 Sep 2008 16:31:34 -0800

A crazy financial question about the timing of my 401k rollover to and IRA in light of current economic events in the US. Is it even possible to time a rollover? I held a 401k at my previous employer (invested in American Funds if it matters). I filled out the requisite paperwork to get my 401k released. I received the pay out check on Friday of last week for the full amount of the 401k. My final task is to mail this check to Bank of America where it will be rolled over into an IRA. I think by default the IRA is set up to reflect the same investments I had with American Funds - though if I wanted to change that before I send the check in I think that I could. I'm running on the assumption that the check I hold in my hand is "frozen" in the sense that although the investments I held at American Funds may have dramatically dropped yesterday, the amount on the check remains fixed.

I'm in a gray area here and out of my element in terms of investment knowledge. Should I hold on to this check until Congress passes something and wait for stocks to rebound? Should I deposit it regardless of what happens? Should I change up anything at BofA before I send the check? Am I even asking the right questions?

What qualifies as a 'school cost' for early IRA withdrawal

christy — Thu, 14 Aug 2008 14:59:50 -0800

What counts as qualified schooling costs for early withdrawal from an IRA? I know, I know, I'm not supposed to touch my IRA money, but it would be super helpful to me to be able to take out just a little of it (like less than 10%) right now to until my school stipend kicks in. Would paying rent count as a legitimate school cost (assuming I was in school while paying said rent)? What other things count as qualified schooling costs and does the fact that my program gives me a stipend effect any of this?

Can I opt out of income taxes on inherited retirement benefits?

xanthippe — Tue, 22 Jul 2008 23:01:02 -0800

Can I opt out of paying income taxes on inherited retirement benefits in the USA? I won't be filing a tax return, anyway. I am a beneficiary of my deceased mother's state retirement plan. I have been given the option to either roll the amount over into an IRA (which I don't want) or take a direct payment, which appears to be subject to a 30% tax: 20% is automatic, and the other 10% appears to be related to electing not to put the money into an IRA.

If I choose a direct payment, the forms give me the following options:

A) "10% federal income tax withholding from any taxable portion of the accumulated account"; or

B) "no federal income tax withholding from any taxable portion of the accumulated acount"; option B continues, "If you request no withholding, you may still be responsible for payment of federal income tax on the taxable portion of your distribution. You may also be subject to tax penalties if your total estimated tax payments and withholding are not adequate to cover your tax liability."

Firstly, could someone please clarify the meaning of option B? I assume it means opting out of an automatic tax payment and agreeing to voluntarily pay it on my next federal income tax. However, I have been living outside of the USA and not filing tax returns for several years, and I intend to continue doing so. I am specifically confused about the ramifications of the last sentence considering, as far as the IRS is concerned, I will not have any income this year.

My real question is therefore: What, if any, consequences will I face if I simply take the maximum amount in cash and do not later declare it as income? If there is a penalty for this, is it subject to a statue of limitations? In other words, is this an easy way out or a really bad idea? I intend to remain invisible to the IRS for the forseeable future; will this ruin my plan?

Lastly, given that I am unlikely to ever live or retire in the USA, is there any other reason, specifically relating to taxes or avoiding such, that I should choose the IRA rollover option instead of a direct payment?

Thanks for any advise. I know I should see a financial advisor/accountant but I currently have major logistical obstacles in this regard.

VTIVX FOF FTW?

selfnoise — Mon, 30 Jun 2008 07:24:57 -0800

What, if anything, is a "Target Retirement" fund like VTIVX missing? I am about to roll my 401k from a previous employer into an IRA at Vanguard. (The previous employer's plan doesn't have great plan options and the webacccess/customer service is crap).

I'm currently 29 years old, so I was thinking of putting a large portion of this rollover into VTIVX, which is a bundle of different Vanguard Index funds. It seems like a cost effective way of buying into funds that I would probably just have purchased separately otherwise.

My question is, should I be looking to add anything else from Vanguard's offerings to diversify or enhance my overall selection? For example, this fund of funds does not include REITs... would it make sense to invest in something like VGSIX in addition to it? Or am I overthinking this?

I realize that there probably isn't a scientific answer to this question. Any thoughts are appreciated.

MAGI May (Be Headed North of $100k)

Anonymous — Thu, 26 Jun 2008 09:09:13 -0800

Will opening a Solo 401(k) before year's end reduce my modified adjusted gross income (MAGI)? I'm a 28-year-old freelance worker with a sole proprietorship, and I'd like to be able to fully fund my Roth IRA for 2008 It looks like I will soon reach $100k in earnings for the year, and I'm starting to think about ways to reduce my MAGI in order to be able to contribute the maximum amount allowed ($5000) to my Roth IRA.

From what I can tell, contributions made to an employer-sponsored 401(k) will reduce my MAGI, but does this reduction occur with self-employed (aka Solo) 401(k)s? If not, does anyone have any additional advice for reducing my MAGI?

advisor for beneficiary accounts

D-ten — Tue, 06 May 2008 09:58:01 -0800

I'd like to cash out some beneficiary investment accounts. I'd like to know in advance what the taxes and penalties (if any) would be. In other words, what would be the cash remaining from this. I've been asking my tax prep person for help and he's been referring me to a CPA and a pay for play investment counselor. Neither of those conversations gave me what I needed. I just need someone who can help me understand the net result of cashing in a beneficiary 401K and IRA. I have an account with Charles Schwab. Perhaps they would be the best people to ask? It would be nice to know all the aspects of doing this before making a decision.
Ultimately, having a financial advisor would be great. Where do I find this person who can start with the question above?