HW "Skip" Weldon wrote:
- quote -

Skip - you are correct, thus my "that I'm aware of"

I've spent more time researching this, and found;

My own company's 401(k) (I work for a Fortune 500 co)
managed by Hewitt claims to treat it (as far as
distributions go) the same as required distributions for an
inherited IRA. (confirming your reply to me)

An article on CNN/Money magazine by Ed Slott states,
"Although the IRS allows this stretchout, most company plans
do not and will force a full payout or a payout over some
limited term, such as five years." so to your point, the
stretch payout is not mandated. Ed goes on to say,"Most
companies will not pay your child or other non-spouse
beneficiary over the rest of their lives."

Next, a non-spouse inherited 401(k) cannot be rolled over
into the beneficiary's 401(k) as would a spouse-inherited
one can be, nor can it be rolled into an IRA, so the
inherited 401(k) even if the custodian allows the stretch
option, has so many restrictions (including the limited
investment choices within the 401(k)) that I'd still choose
the IRA rollover while alive.

The only advantage I've read (but not seen confirmation) for
the 401(k) is that it might be better protected during
bankruptcy.

(This whole thread would be a good FAQ for the 401(k) vs IRA
question)

JOE

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"A.G. Kalman" <glendale202-mtmtax[at]yahoo.com> wrote:
- quote -

That's true while you you are employed with the company
(depending on the terms of the 401(k)), but I didn't think
it was true for ex-employees. (If you have an outstanding
loan when you terminate employment, you must repay it or
treat it as a distribution; it doesn't make sense that you
could repay, terminate, and take out the same loan. But
this is the IRS we're talking about :-).

--
Mark Freeland
nNeEwTs[at]sonic.net

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"DF2" <replyvia[at]newsgroup_please.com> wrote:
- quote -

If it relates to a rolled over 401(k), then there is no
difference.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Joetaxpayer <joetaxpayer[at]nospam.com> wrote:

- quote -

IRC allows, but does not mandate, 401k plans same
beneficiary options as IRA. Best bet is to check the 401k
contract.

-HW "Skip" Weldon
Columbia, SC

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joetaxpayer <joetaxpayer[at]nospam.com> wrote:
- quote -

That is indeed interesting.

Rolling into an IRA and then converting to a ROTH, is
something I haven't given much thought to.

My wife will be retiring this year which will leave us with
no earned income. For the next few years before we reach
the age of 71 1/2, we will probably be in the lowest tax
bracket that we will ever be in. It may well pay to eat the
tax now, and not have to worry about minimum distributions
after 71 1/2, which will place us, most certainly, in a much
higher bracket.

Thank you for the input. I will have to do some number
crunching.

--
-Ernie-

"There are only two kinds of computer users -- those who have
suffered a catastrophic hard drive failure, and those who will."
Have you done your backup today?

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Ernie Klein wrote:

- quote -

If you have company stock with NUA in the 401K, you lose the
tax advantages when you roll it over into an IRA. When you
roll over after-tax contributions, the method for
calculating the nontaxable portion of any distribution
changes from the simplified method to a ratio. See Form
8606 for the IRA formula and see the simplified method
worksheet in any of the tax pubs. Early distributions from
an IRA have a lot more exceptions to the 10% penalty. You
can't borrow from an IRA. You may or may not be able to
borrow from a 401K. IRA funds are generally available to
you at any time in any amount. There may be restrictions on
how you can remove funds from a 401K. As you are a former
employee, you probably only have one choice before reaching
retirement age: lump sum distribution.

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Mark Bole wrote:

- quote -

I think it is the 401(k) that is less-easily tapped.

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Mark Bole wrote:

- quote -

I think it is the 401(k) that is less-easily tapped.

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Ernie Klein wrote:

- quote -

I'd add two points to the discussion;
1) An IRA, when inherited, may be stretched over the
lifetime of the beneficiary, taking minimum withdrawals
based on their life expectancy. A 401(k) has no such
provision that I'm aware of.

2) IRA allows you (within certain income restrictions) to
convert a portion to a ROTH Ira, paying the taxes in that
year, but never paying tax on it again, and having no RMD
(Required Minimum Distribution) provision. This can help you
shift money in years you are in a lower tax bracket, and
only take your IRA RMD when in a higher bracket. This tactic
lends itself to good estate planning, as you then leave the
Roth as a tax-free inheritance to the beneficiaries (no
income tax, estate tax if any, still applies)

JOE

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"Ernie Klein" <ecklein[at]pacbell.net> wrote:

- quote -

There's no tax consequence at all to the rollover. The only
pitfall is to make sure that it's a direct transfer so there
won't be otherwise mandatory withholding.

- quote -

On your return for the year of the rollover you'll establish
a previously-taxed "basis" for your IRA by filing Form 8606.
If you dig deep enough in that form's instructions for line
2 you'll find this. When you take distributions from the
IRA you'll File an 8606 each year to compute the taxable
portion.

If you want to skip that part, you could take a nontaxable
cash distribution of your after-tax contributions and roll
the rest into the IRA.

--
Phil Marti
Clarksburg, MD

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Ernie Klein wrote:

- quote -


I vote "yes". For example, a company (ex-employer) might
"freeze" your 401k investments during a period of market
volatility while they change custodian banks, and there's
nothing you can do about it. The service and investment
choices may be limited. On the other hand, as long as you
have a 401k at the company, they have to send you an annual
statement of financial position on the company's retirement
plans overall (I forget the exact legal term).

- quote -

Tax advantage, no. Other pitfalls: one of these can be more
easily tapped in a bankruptcy situation, I do not remember the
details but I think it was the 401k.

-Mark Bole

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I have a considerable amount invested in my ex-companies
401K (employee saving plan). I am considering rolling this
into an IRA so that I will have more control over the
investments.

I know that if I leave everything as it is now, I will have
to start taking distributions from both my current
traditional IRA and the 401K when I reach 71 1/2, and I
believe the formula is the same for both accounts.

According to my ex-companies web site, if I choose to roll
the entire amount into a IRA then there is no mandatory
withholding.

Is there any tax advantage/disadvantage to roll the 401K
into an IRA or any other pitfalls that I might not be aware
of?

One other thing -- the 401K contains some after-tax
contributions. If I instruct the company to roll the entire
401K into an IRA (which is the only way they will do a
rollover), how are the after-tax contributions treated (i.e.
I wouldn't want to have to pay tax on this money a second
time when I eventually withdraw it from the IRA) ?

--
-Ernie-

"There are only two kinds of computer users -- those who have
suffered a catastrophic hard drive failure, and those who will."
Have you done your backup today?

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