Author Topic: How would I get this IRA started?  (Read 3887 times)

wing117

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How would I get this IRA started?
« on: July 17, 2013, 03:14:57 PM »
I want to open a Roth IRA with Vanguard (My First real foray into investing!!!) and I have three accounts to pull from:

Savings - 2748
Old Fidelity 401K - 1657
Horrible Roth at a CU - 1095
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$5500 year's contribution.

Since none of these equal 3K as the "opening account balance", what would be the best way to initiate the account? The online site is asking for my banking information, but I don't want them to pull all 5500 from there (I have the money, but just don't want that because of step two of this overall plan). Do I withdrawal the funds from the 401K/Old Roth first, and then quickly turn around and place it into the Vanguard account?

Should I just call someone?  Help please!

arebelspy

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Re: How would I get this IRA started?
« Reply #1 on: July 17, 2013, 03:21:13 PM »
I'd probably close the 401k, pay the taxes, combine it with the savings to open the new account, then roll over the other Roth into it.

That way the old Roth still counts towards the old year's contribution in case you come up with the extra money to finish off this year's contribution (i.e. you can do 5500 this year PLUS roll over that 1095, assuming it was contributed earlier than this year, rather than having that 1095 be part of this year's 5500).

Otherwise if you want to leave the 401k open, you can talk to Vanguard about opening a Roth via a combination of rollover + deposit, then roll over 1095 from the other Roth and add in your savings at the same time to open the account.
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wing117

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Re: How would I get this IRA started?
« Reply #2 on: July 17, 2013, 03:24:20 PM »
Thanks! I have no interest in keeping the 401K open. I'll go with your first option. Thanks! Didn't know about the rolling over the old Roth, so I'll make sure I max out the new Roth for this year.

GreenGuava

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Re: How would I get this IRA started?
« Reply #3 on: July 17, 2013, 04:03:45 PM »
I'd like to suggest a slightly different approach with that 401(k): roll it into a rollover IRA at Vanguard;  they can help you with this process. 

If you decide you'd like to pay the taxes on it this year and convert it to a Roth, you can do so - and, as long as you don't use money from the account to pay the conversion tax, you don't pay the 10% early withdrawal penalty.  This is effectively a cheaper way to get the same money into the Roth IRA.

As a bonus, the money converted from a pre-tax account to a Roth doesn't count towards that year's contributions.  This will allow OP to put $5500 plus the value of this 401(k) into a Roth this year, if he or she can afford to do so.

By the way, each of those accounts is at least $1000, which can be used for a target date fund at Vanguard, at least as a holding until they're combined.  Vanguard can help you over the phone to overcome the problems with minimum initial balance requirements when you are moving multiple small accounts in.

arebelspy

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Re: How would I get this IRA started?
« Reply #4 on: July 17, 2013, 04:06:54 PM »
I'd like to suggest a slightly different approach with that 401(k): roll it into a rollover IRA at Vanguard;  they can help you with this process. 

If you decide you'd like to pay the taxes on it this year and convert it to a Roth, you can do so - and, as long as you don't use money from the account to pay the conversion tax, you don't pay the 10% early withdrawal penalty.  This is effectively a cheaper way to get the same money into the Roth IRA.

As a bonus, the money converted from a pre-tax account to a Roth doesn't count towards that year's contributions.  This will allow OP to put $5500 plus the value of this 401(k) into a Roth this year, if he or she can afford to do so.

By the way, each of those accounts is at least $1000, which can be used for a target date fund at Vanguard, at least as a holding until they're combined.  Vanguard can help you over the phone to overcome the problems with minimum initial balance requirements when you are moving multiple small accounts in.

Bravo!  Excellent advice.

Listen to this guy, it is a much better way to go (avoids the 10% penalty and gets both the previous Roth and 401k into new Roth without any of that counting towards this year's 5500 contribution).

The tricky part will be Vanguard wanting to open an account with 3k - worst case you save up until you have that in the savings account (you're already pretty close), but if you talk to their customer service they should be able to help you out, they're pretty friendly/helpful.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

icefr

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Re: How would I get this IRA started?
« Reply #5 on: July 17, 2013, 11:41:59 PM »
The tricky part will be Vanguard wanting to open an account with 3k - worst case you save up until you have that in the savings account (you're already pretty close), but if you talk to their customer service they should be able to help you out, they're pretty friendly/helpful.

If you open a target date fund, the minimum is only $1,000. So that should work for the OP's situation.

Will

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Re: How would I get this IRA started?
« Reply #6 on: July 17, 2013, 11:47:22 PM »
The Vanguard STAR fund is a $1000 option as well.

wing117

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Re: How would I get this IRA started?
« Reply #7 on: July 18, 2013, 08:37:50 AM »
Okay, so after weighing the options and also talking with my current 401K provider, I've opened the Vanguard account with 3K from my savings and will the proceed to do rollovers so I can apply an additional 2.5K this year to max out the fund. This helps avoid those pesky (and to a newbie - complicated) taxes.  I'll be giving Vanguard a call once the 3K has hit the new account.

Thanks for all the advice!

wing117

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Re: How would I get this IRA started?
« Reply #8 on: July 19, 2013, 02:05:53 PM »
Quick update - Got the Vanguard Account opened with 3K and just completed the paperwork to have my old Roth transferred in. Fidelity is sending me the check (made out to Vanguard) for my 401K transfer.

The lady who helped me with the 401K transfer, had me setup a separate Rollover IRA account in a target date fund to avoid taxes "and have it be counted as an actual roll over".  I'd rather not split up my money at this point, as my short term plan includes contributing to the Roth IRA till it is maxed out, then open a brokerage account to contribute everything else to and do this yearly (At current savings rate: 5.5K to Roth and 18.5K to brokerage each year).

What would the Mustachians recommend going forward? Leave the Rollover account open to avoid taxes and let it grow while I max out everything else? Transfer it to my Roth IRA and pay the taxes?

Thanks!

Rebecca Stapler

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Re: How would I get this IRA started?
« Reply #9 on: July 19, 2013, 02:37:07 PM »
Quick update - Got the Vanguard Account opened with 3K and just completed the paperwork to have my old Roth transferred in. Fidelity is sending me the check (made out to Vanguard) for my 401K transfer.

The lady who helped me with the 401K transfer, had me setup a separate Rollover IRA account in a target date fund to avoid taxes "and have it be counted as an actual roll over".  I'd rather not split up my money at this point, as my short term plan includes contributing to the Roth IRA till it is maxed out, then open a brokerage account to contribute everything else to and do this yearly (At current savings rate: 5.5K to Roth and 18.5K to brokerage each year).

What would the Mustachians recommend going forward? Leave the Rollover account open to avoid taxes and let it grow while I max out everything else? Transfer it to my Roth IRA and pay the taxes?

Thanks!

Unless your tax bracket right now is really low, I would just leave it in the rollover traditional (I'm assuming?) IRA. I don't think it's a terrible idea to diversify your assets in terms of what's tax deferred and what's not. If you have a different job in the future and that has a traditional tax-deferred retirement plan, you can roll it into your Vanguard rollover when you leave.

That said, maybe I am missing something, but money that is already in your traditional IRA is not going to count towards your 2013 contribution unless you put it into the account (not just the rollover--the original account) in 2013. You can still contribute $2500 more this year!