When moving funds from a 401(k) plan to an IRA or to another qualified plan, a direct rollover solves some potential problems.
retirement plan
More Clarification on Rollovers and Transfers
I’m compelled to provide an additional update to the posts I’ve provided in the past in the article Running Afoul of One Rollover Per Year Rule and its follow-up More on the One-Rollover-Per-Year Rule. This is primarily to provide clarity to a portion of this rule that I personally was unclear on when the articles were originally written. The rule is that you are restricted to one IRA rollover in a 12-month period. So let’s define a few things for the purpose of this discussion: Rollover – this is when you move money from one IRA to another, first taking possession of the funds prior to depositing the funds into the new (or the same old) IRA account. You have 60 days to complete this process. At the end of the tax year you’ll receive a 1099R from the original custodian, with a distribution code of 1 or 7 (this […]
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IRA Investment Planning for Taxation
The question often comes up – what types of investments are best for my IRA? Of course, any investment that you make in a tax-deferred fashion is a good one, at least in theory. But there are some investments that make the most sense for your IRA versus other vehicles… and some investments that make more sense in other kinds of investment accounts, where possible. Listed below are a couple of considerations to take into account when considering taxation of your IRA and non-IRA investments. Bonds and other interest-bearing vehicles Given the nature of the IRA – deferring taxation on current income and growth, investments that would otherwise be taxed at ordinary income tax rates would be best for your IRA. This includes the likes of interest-bearing investments, such as CDs or bonds. Since, presumably, your tax rate when you begin taking distributions will be either the same or less […]
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Roth Conversion and the Pro-Rata Rule
I received the following question from a reader. It’s a unique situation that you may find interesting, so I thought I’d share the interaction with you: Here’s my situation, this year I started with the following: (A) Rollover IRA (from rollover funds several years ago with no new funds added since. $157K was rolled over in 2020, but account is now valued at ~$146K). (B) Roth IRA (that was opened years ago with minimal amount, but no new funds added in the past decade due to income limitation). (C) Non-deductible (separate) traditional IRA account opened in 2016 with contributions deposited in each year, but have only been depositing NON-DEDUCTIBLE dollars (a total of $23K invested). However, the account was only worth ~$17K/$18K at the time I went to convert). In early 2022, after making the 2022 contributions, I converted the entire value of the non-deductible traditional IRA account to a […]
Sterling Raskie, MSFS, CFP®, ChFC®
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.