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re: Old 401k - what to do with it?
Posted on 1/21/13 at 9:50 am to Lsut81
Posted on 1/21/13 at 9:50 am to Lsut81
One thing I am reading about the implications of rolling it to a Roth...
Yes, the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.
So unless you're 100% positive that you won't need to touch it prior to age 60, it is a wash on net return.
Yes, the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.
So unless you're 100% positive that you won't need to touch it prior to age 60, it is a wash on net return.
2
Posted on 1/21/13 at 11:19 am to Lsut81
quote:
Yes, the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.
Just to clarify, your contributions can be removed without penalty. I think that's what you meant.
Posted on 1/21/13 at 12:42 pm to Lsut81
quote:
One thing I am reading about the implications of rolling it to a Roth...
quote:
the interest earned is tax free if you don't touch it until 59.5, but if you pull it out beforehand, you are subject to the 10% early withdrawal fee and you pay taxes on the interest earned.
For interest earned, this is correct. Of course, the contribution can be pulled out at any time because when you contribute to a Roth you have to pay taxes on that up front.
Going from a 401 to a Roth isn't actually a rollover, the technical term is "recharacterization" and you have to pay tax on the amount being recharacterized. You can rollover directly to a traditional IRA without paying taxes though, but of course you can't pull out the contribution early for those.
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