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Transferring 401k to IRA
Posted on 1/26/17 at 6:23 pm
Posted on 1/26/17 at 6:23 pm
I'm looking into transferring wife wife's 401k from her old job into an IRA to be able to defer taxes to the following year. I was told this was possible. Instead of cashing out the 401k and paying the 10% penalty plus 20% taxes, can I transfer it to an IRA and and just pay the 10% penalty and then defer taxes to the next year? I'm looking to use the cash for a real estate investment and defer the taxes would help me as I need that extra money for the investment.
Posted on 1/26/17 at 6:28 pm to pcolatiger28
If you "roll" a 401k into an IRA, it is a non-taxable non-penalized event.
If you then take the money out of the IRA, you will pay a 10% penalty plus income tax.
The 401k and the IRA are "qualified" retirement accounts. As long as the money stays in such, you're good.
If you then take the money out of the IRA, you will pay a 10% penalty plus income tax.
The 401k and the IRA are "qualified" retirement accounts. As long as the money stays in such, you're good.
Posted on 1/26/17 at 6:29 pm to Shepherd88
quote:
The 401k and the IRA are "qualified" retirement accounts. As long as the money stays in such, you're good.
yep. call the place you are transferring too, they will eagerly help you do it.
Posted on 1/26/17 at 6:31 pm to Shepherd88
I was told, could have been bad information, that if I cashed it out of an IRA, I could defer the tax until the following year so 2018. If it doesn't allow that then wouldn't I just cash out the 401k and move on? I'm trying to avoid the immediate tax and just pay the penalty. Obviously the tax will come due, just hoping to defer a year. Thanks
This post was edited on 1/26/17 at 6:32 pm
Posted on 1/26/17 at 6:33 pm to pcolatiger28
If you cash it out now, you're not gonna get a 1099-r until February 2018. More than likely the 401k or Ira custodian will recommend you with hold a percentage (some may mandate it typically 10%). But should you sign off that you don't want that with held, you best be able to come up with that money when tax is owed in 2018.
Posted on 1/26/17 at 6:39 pm to Shepherd88
Thank you. So I can do this with either a 401k or IRA? I was only going to transfer it to an IRA as I was told I could defer the tax when cashing in the 401k. Again, could be bad information.
Posted on 1/26/17 at 7:14 pm to pcolatiger28
I'd make sure that's what the 401k co tells you as well and insure you won't get a 1099-r until 2018 but yea that's how I presume it would go down since you'd be cashing the plan out in 2017.
Posted on 1/26/17 at 10:22 pm to pcolatiger28
OP why do you keep using the word "cashing out"?
I'm no expert and this, and more knowledgeable posters can chime in but my understanding is that as long as she has her company's 401k account manager transfer the funds to the IRA there won't be any tax due or penalties. You will receive a couple of forms that you will file, but it won't have any impact on your taxes.
Now if you want to use those funds for a backdoor ROTH IRA, then that is a different story. And if you expect her to be out of work for a while this year, I would look into this since you will have a lower combined income (less taxes).
I'm no expert and this, and more knowledgeable posters can chime in but my understanding is that as long as she has her company's 401k account manager transfer the funds to the IRA there won't be any tax due or penalties. You will receive a couple of forms that you will file, but it won't have any impact on your taxes.
Now if you want to use those funds for a backdoor ROTH IRA, then that is a different story. And if you expect her to be out of work for a while this year, I would look into this since you will have a lower combined income (less taxes).
Posted on 1/27/17 at 8:35 am to castorinho
I thought I specified in my original post that it was from her old job. She is working for a new company as a contractor and doesn't have a 401k setup with them. We would like to take this small 401k and use it for a real estate investment. In order to avoid the taxes, for now, I was told to transfer it to an IRA as they would just hit me with the 10% penalty and I could defer the taxes. I was asking if this was true. Either I can just pay the penalty when cashing out the 401k and defer taxes until 2018, or I cant defer the taxes and maybe a transfer to an IRA would work. My goal is to pay just the 10% penalty and defer taxes to 2018. If this can be done via the 401k then great, if not, then can I transfer it to an IRA and then do the above.
Posted on 1/27/17 at 8:53 am to pcolatiger28
Completely missed your last sentence in the OP, my bad.
Posted on 1/27/17 at 9:08 am to castorinho
No worries, thank you for the input everyone.
Posted on 1/28/17 at 8:52 am to pcolatiger28
I believe once you leave a job ,that job's 401k can be rolled all into a rollover IRA, with no penalties and be done at any time.
Further, if you leave your old 401k open for too long, the old company may want to close your account and if you didn't rollover then to a qualifying IRA, they would send you a check with the 10% penalty taken out.
Further, if you leave your old 401k open for too long, the old company may want to close your account and if you didn't rollover then to a qualifying IRA, they would send you a check with the 10% penalty taken out.
Posted on 1/30/17 at 8:15 am to East Coast Band
quote:
I believe once you leave a job ,that job's 401k can be rolled all into a rollover IRA, with no penalties and be done at any time.
Further, if you leave your old 401k open for too long, the old company may want to close your account and if you didn't rollover then to a qualifying IRA, they would send you a check with the 10% penalty taken out.
I just did this. I left my job, the 401k was automatically rolled into a traditional ira. My options were to keep it there, cash out and pay 10% penalty plus taxes, or roll again into my Roth where there's no penalty, but I do pay the taxes.
The taxes can either be paid immediately (which the guy says nobody does) or they send you a tax form in early 2018.
I rolled it into my Roth.
Posted on 1/30/17 at 8:19 am to 632627
Also, check the tax laws, there's ways to bypass the 10% penalty. If she was fired/laid off and she continued paying for health care for a certain amount of time, I believe you can skip the penalty.
I'm not a tax specialist so please do your own research
I'm not a tax specialist so please do your own research
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