Author Topic: New Here, Need some help converting a 401k  (Read 2048 times)

lilliepie07

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New Here, Need some help converting a 401k
« on: June 25, 2015, 08:56:54 AM »
Hi Everyone!

I am extremely new to the MMM community. I apologize if this question has been asked a lot. My husband has an old 401k that is losing money rapidly. It's got about 5k in it currently. He is 30 and is obviously very behind in retirement savings. His current job offers no benefits other than one week vacation and he currently makes 45k before taxes, while I am a SAHM with young children.

My question is, what do we do with this old 401k? We don't make much money, so I am afraid of the tax issues associated with converting it. We get back EIC and other credits, and I am sure those would be wiped out if this was filed as income. With that said, his income has generally always increased. This is probably the least amount of money we will make currently. Also, what is the best way to build retirement savings if we both don't have the option of a 401k?

I have heard good things about Vanguard. Any suggestions on converting it to an account there? What do we invest the money in? We are both fairly clueless when it comes to investing so I hope to learn more from this site.

Thanks!

rubybeth

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Re: New Here, Need some help converting a 401k
« Reply #1 on: June 25, 2015, 09:05:32 AM »
When you say "convert," I assume you actually "rollover" and you could do this to a regular IRA (also known as a traditional IRA or t-IRA) and avoid paying taxes at all. You can easily file rollover paperwork with any of the big IRA holders. My top choices would be Fidelity or Vanguard. It's usually one phone call or form to do this--my husband rolled an old IRA to Vanguard and it was extremely easy.

https://investor.vanguard.com/401k-rollover/
https://www.fidelity.com/retirement-planning/learn-about-iras/401k-rollover-options

If you don't have access to 401k or other untaxed accounts via employer, your IRA is likely your best bet. Others can chime in on this, but I've also heard of starting your own business and getting access to a 401k that way.

pbkmaine

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Re: New Here, Need some help converting a 401k
« Reply #2 on: June 25, 2015, 09:08:51 AM »
Have the 401(k) information, then call Vanguard and tell them what you want to do. They are very good at walking you through things. Vanguard should be able to pull the money out of your old account. Since it's DH's money, he will need to be the person on the phone.

lilliepie07

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Re: New Here, Need some help converting a 401k
« Reply #3 on: June 25, 2015, 09:11:36 AM »
My only thought is, isn't it better to take a tax hit now at a lower income? And yes, I meant roll over :)

rubybeth

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Re: New Here, Need some help converting a 401k
« Reply #4 on: June 25, 2015, 09:14:36 AM »
My only thought is, isn't it better to take a tax hit now at a lower income? And yes, I meant roll over :)

What would you be doing with that money except for saving it for retirement? Do you mean convert to a Roth IRA and pay taxes now but not in the future? That would be an option, but you can always convert a t-IRA to a Roth in whatever year you like.

lilliepie07

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Re: New Here, Need some help converting a 401k
« Reply #5 on: June 25, 2015, 09:32:02 AM »
Good to know! I didn't realize it could be converted at any time. I guess we will do the rollover to the traditional IRA and take it from there. Thanks!!!

rubybeth

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Re: New Here, Need some help converting a 401k
« Reply #6 on: June 25, 2015, 10:31:25 AM »
Yes, it's called a Roth IRA conversion: https://investor.vanguard.com/ira/roth-conversion

Depending on which firm you select, you will want to do more reading about which funds to buy with your rollover 401k (hint: index funds). If you go with Vanguard, MMM suggests VTSMX, and for Fidelity, I like the Spartan funds like FUSEX.

lilliepie07

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Re: New Here, Need some help converting a 401k
« Reply #7 on: June 25, 2015, 10:48:43 AM »
Thank you! I will do some research today and have hubby call tonight.