Author Topic: Advice on roll over IRA  (Read 1712 times)

JustStubble

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Advice on roll over IRA
« on: September 19, 2016, 07:05:41 PM »
Hi Everyone,

I love trying to grow from more than just stubble to a full blown mustache but I have a question. I got a letter from a job from I haven't worked at in over 10 years offering to pay out my pension plan (I'm 44). They are giving me 3 options take a lump sum in cash or roll over to an IRA ($21,000), Leave it where it is until I retire or take a monthly payment starting now at $79 a month.

I'm currently working 2 jobs and have been working most weekends doing improvements on my house that is in need of repairs. In about the last 12 months I have maxed out my 401K and Roth but to do that I am cash broke. I have about $14K in CC debt that I would like to pay off now if I can and a brand new car (2015 Kia Optima I owe 16K) that I only bought to drive for Uber so it pays for itself and gives some great tax benefits. The CC debt was spent remodeling parts of my house and I am paying it off at a few thousand a month. Doing the $25K in work on my house has  increased the value by almost $100K

What I would ideally like to do is roll it over into an IRA but was wondering a few things. Does anyone know if I can roll it over then take a loan against it? That would pay off the debt and not get hit with a penalty. The other thought I had was can I take the cash and pay the penalty but use the money to do work on the house that will get me tax breaks? I was going to replace the furnace next year but would happily do it this year.

I love the sight and I made a lot of mistakes, I don't have much in my retirement plan (30K) or equity in my house (+100K up from -10K a year ago) so I really don't want to do something to set myself back but I'm really torn on this, I'm just cash broke and I don't like being this close to the edge and it would 'feel' better but I can't let myself make rookie mistakes. Love the site, love the articles, love the comments.

Thanks in advance....

seattlecyclone

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Re: Advice on roll over IRA
« Reply #1 on: September 19, 2016, 07:31:58 PM »
Something tells me that the company wouldn't be trying to get you to take a lump sum from their pension plan if they thought they would be better off with you leaving the money where it is. A traditional pension can be a very nice thing to have, giving you some guaranteed income during "normal" retirement years alongside social security.

If you do roll it over, be aware that you can't take loans from an IRA, nor does work on your own house generally lead to a tax break.

Sounds like you're paying off "a few thousand" toward your credit card every month. At that rate the debt should be gone by this time next year and you'll be able to get a good start on an emergency fund as well. Keep up the good work!

frugalcoconut

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Re: Advice on roll over IRA
« Reply #2 on: September 19, 2016, 07:48:03 PM »
As the previous response mentioned, if you are paying off the $14K in CC debt by "a few thousand a month" then you should be done by early next year.  Not worth it to sacrifice your retirement in order to move this up by a few months.

Why the car loan for $16K if you have this much extra cash each month?  Is it a super-low interest rate?

401k's generally allow loans to be drawn against them; however, IRA's do not.  I believe there is some rule that allows you to withdraw and then replace the full amount within 60 days without penalty ... but I'm not well versed in how that works (and typically it's not a good idea to chance it anyway because you never know what could happen).

You're working 2 jobs -- is one of them the Uber, or is Uber essentially a 3rd job?  You have a good amount of cash coming in right now -- it's just that some of it is going toward debt right now because you *chose* to do some work on your house prior to saving up ahead of time for it. *Face Punch*

I would suggest creating some "sinking funds" ... for future car repair/replacement, for future home projects, etc.  Stop spending your money before you've earned/saved it.

At 44, you need to start looking toward the horizon.  It sounds like you're making significant improvements with maxing out your retirement accounts -- just to confirm, in 2016 you have contributed $5.5K toward the Roth and $18K toward the 401K, correct?  It will still be a while before the balances start creeping up enough to get you into a more acceptable position for your age. 

For the pension plan at your former employer, you should definitely NOT take the lump sum in cash.  My personal opinion is that it's better to roll the $21K into an IRA (as opposed to receiving $79/month) *provided* that you don't touch the money until retirement.  This is key!  I'm hoping that this will increase your motivation to save as you see your liquid assets climb closer to the $100K milestone marker.

JustStubble

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Re: Advice on roll over IRA
« Reply #3 on: September 19, 2016, 08:06:52 PM »
Thank you both,

The interest rate on the car is 2%, I had been driving a shared car but that wouldn't be possible any longer. My company moved from downtown Boston to south of Boston, I got a 5% raise for the commute and my primary car was leaving me stranded. I had been taking the bus but for a lot of reasons I don't expect that I will find another job making this kind of money. I drive for Uber when I get out of work and would have been sitting in traffic and make some extra money during peak times then drive home with no one on the road. I get home an hour later than i had been but I make a few hundred a week.

I maxed out my 401K to 18.5 and Roth is at 1K this year but I just moved my deduction from 22% into the 401K into the roth so I will have to end that before the end of the year.

Uber is the second the third is fixing up this house. I do most of the work myself but I have a good set of professionals that help me do what I can't. I need to replace my furnace in the next year or so (its an oil burner from the 40's) With the tax credit, better effeciency and added value to the house it should wash. I have a roommate and am looking for a second so I expect to be living free in a couple of months.

I honestly can't believe how far I have come in the last few years. I'll take the face punch and roll it over.......Thanks