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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: GW on December 09, 2019, 10:44:24 PM
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Hi there,
What would you suggest we do with my wife's 401K from an old employer ($5,878 balance)?
Her new job does not have a 401K for her to roll into. I have a Traditional IRA (old employer roll overs) and I contribute to my company 401K up to the match. We have a joint Roth IRA and I was considering pulling the money out, paying the 10% penalty, and migrating that small amount money into the joint Roth since we can only add $6,000 to that account each year.
OR
Should I roll that balance into the Traditional IRA? Thoughts? We are debt free :)
Thanks,
GW
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We have a joint Roth IRA....
That would be a neat trick, because the law does not allow a "joint Individual" Retirement Account.
Might be worth understanding whose that Roth IRA is.
To your original question: is it a problem to leave it invested where it is?
Is your AGI such that a Backdoor Roth process (https://www.bogleheads.org/wiki/Backdoor_Roth) is or is likely to become pertinent?
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Depends on your tax situation.
With such limited info, it's hard to give detailed recommendations.
I'd probably roll it into Rollover IRA because I like having more control and that would remove a layer of fees, the 401k layer.
Plus if the market turns and the value drops below $5,000, the old employer might boot her anyway.
If you're in a low tax bracket, she could convert the Rollover IRA into a Roth IRA without paying any early withdrawal penalties, just paying income tax.
As previous poster mentioned, all IRAs are individual accounts as are 401ks. So all these account would be in her name.
By using "joint," did you mean that you contributed to it by using joint income or maybe based on your income, not her own?
HTH
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Sorry, to clarify on the "joint" Roth. We have 1 Roth IRA between us in my name. We file jointly on taxes, which caps us at $6,000/yr to put in there.
We use our shared income to contribute to it.
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I'd roll it over into a traditional IRA.
But if you really want to convert it to Roth, do a Roth conversion into an IRA in her name. No reason to pay a 10% penalty to do that. Then start funding both of your IRA's going forward - double the limits!
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I'd just roll in into a traditional and be done with it.
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Sorry, to clarify on the "joint" Roth. We have 1 Roth IRA between us in my name. We file jointly on taxes, which caps us at $6,000/yr to put in there.
We use our shared income to contribute to it.
The annual cap is for new contributions & it's per person. An old 401K can & should be transferred into a Rollover IRA.
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You aren't capped at $6000 as a couple. Even if your spouse is not working, if your income as a couple is over $12000 you can contribute $6000 each to either a TIRA or Roth IRA, as long as you file jointly.
https://www.investopedia.com/terms/s/spousal-ira.asp
To answer your original question, yes roll it over into a TIRA.