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Learning, Sharing, and Teaching => Investor Alley => Topic started by: palebluedot on September 28, 2013, 10:48:08 PM

Title: Mom has old 401k
Post by: palebluedot on September 28, 2013, 10:48:08 PM
So I recently found out my mom has this old 401k from her previous employer. She left the employer back in January 2011 so it's been sitting there just earning interest but no contribution. She turned 59 this past May so I assume she is eligible to begin withdrawing without penalty. However, she doesn't want to use that money yet until she hits 65. Instead she wants to continue to contribute over the next 5-6 years. Obviously this isn't possible since she isn't employed by that company anymore. I am looking at several options I can present to her on what to do with the 401k money which is currently at $4800.

My parents are in a low tax bracket (15% I believe). I don't think the income tax for the 401k withdrawal would bump them up to the next bracket.

The current fund on the 401k is a MetLife Stable Value Fund (100% bonds) at a high 1.31% ER. I am thinking a Vanguard TRF 2020 would provide them with decent returns to supplement their SS when the time comes.

Any suggestions? Much appreciated.
Title: Re: Mom has old 401k
Post by: Another Reader on September 29, 2013, 07:45:01 AM
Suggest to your mom that she roll the money over to a traditional IRA at someone like Fidelity or Vanguard.  However, if she is completely risk averse, figure out the net return after expenses for the stable value fund before she makes a change.  If she is not willing to take any risk with the money, a net 2 or 3 percent yield might be better than she can do elsewhere.
Title: Re: Mom has old 401k
Post by: palebluedot on October 04, 2013, 11:42:54 AM
Thanks for the reply. I will talk to her about potential risks if the money is rolled over. I assume you are suggesting a traditional IRA in favor of a ROTH since they might be in a lower tax bracket when they are ready to begin withdrawing rather than paying a possible 15% now for a ROTH conversion? Just trying to piece it all together. Thank you again.
Title: Re: Mom has old 401k
Post by: Another Reader on October 04, 2013, 01:25:52 PM
She's in a low tax bracket that won't change much after her retirement and she's close to retirement age.  I would probably roll the money into a traditional IRA so all of it will work for her until it's time to withdraw it.  Do look at what she is netting from the stable value fund before she moves it if she does not want stock or bond risk.  You can always roll it over, but you can't undo the rollover once it's done.