Finally liquidated my 401k and SEP IRA

[Anonymous]

Similar situation, early 30s with solo 401 and other ira’s. I have not liquidated my plans but have thought about it. I cannot stomach the tax penalties for withdrawal. So I moved investments into a money market fund within the plans. The plans currently grow only with contributions. I dont like the current market downside risk. I’m thinking the self directed plan is a better option to gain more control.

[SK in CV]

There have been a few misconceptions thrown around in this thread, and a few things that need to be clarified. Some of these have already been covered.

Most ALL employer sponsored “retirement plans” can be rolled over, tax free, into an IRA. This includes 401Ks (and the non-profit employer versions, the 403Bs, etc), pension plans, profit sharing plans, even lump sum distributions from defined benefit plans.

Upon distribution, it almost never makes a difference whether it’s an employee’s elective deferrals of their own income into the plan or an employers funds (matching or otherwise).

Most every brokerage house has a self-directed IRA plan. The only difference between them is which investments they will allow as administrators or custodians. Most big houses (Merrill Lynch, Morgan Stanley, even Fidelity) tend to be a bit more conservative and only allow publicly traded securites or bank deposits. Others will allow direct real estate investments or individual trust deed investments. All are governed by federal law which prohibits very specific investments. Generally, those include direct investments in precious metals, collectibles, and I think stock options. Most all other investments are allowed.

There are some ominous tax consequences in making investments in non-corporate businesses (direct investment in rental property, for instance), which may require the IRA to actually pay income taxes on non-investment income. So check with your tax advisor before making that kind of investment.

Additionally, there are very specific prohibited transactions that fall into the related-party category, which would otherwise be perfectly legal investments.

It almost never makes sense to take a taxable distribution (or worse, a premature taxable distribution, in California, subject to a 12.5% penalty) in order to make an investment. Unless the investment falls into the very short list of prohibited transactions, there is rarely a reason the exact same investment can’t be made within an IRA account, usually with 80% or more funds available to make the same investment. (You can lose 45% on your investment within an IRA and still be in the same place as if you made an investment with a taxable distribution that didn’t change in value.)

If an employer matches contributions, even at 50%, it’s silly not to take advantage of it up to the maximum matching, if it’s affordable. That’s a 50% IMMEDIATE return on your investment, even if whatever your specific investment choice doesn’t earn a penny. If the ivestment choices are lousy, pick US government securities. The likelihood of them loosing significant value is remote. You’ve still made the 50% 1st year return on the investment.

If you’ve made a withdrawal that you intend to pay taxes on, you still may be able to change your mind. Any or all of it can be rolled back into and IRA within 60 days. This can only be done once a year. I just had a client use $30,000 from her IRA, as a short term loan to pay off a debt that was due, in anticipation of a $30,000 tax refund used to roll back into the IRA.

Keep in mind that if tax was withheld from the distribution, the full amount, before the withholding, has to be rolled back in. If only the net amount is rolled back in, you will still owe taxes on the withholding amount.

And finally, none of this is professional advice. If it was, you’d have to pay me gobs of money. So until I get a check in the mail, consult a competent professional before you jump.

[SK in CV]

There have been a few misconceptions thrown around in this thread, and a few things that need to be clarified. Some of these have already been covered.

Most ALL employer sponsored “retirement plans” can be rolled over, tax free, into an IRA. This includes 401Ks (and the non-profit employer versions, the 403Bs, etc), pension plans, profit sharing plans, even lump sum distributions from defined benefit plans.

Upon distribution, it almost never makes a difference whether it’s an employee’s elective deferrals of their own income into the plan or an employers funds (matching or otherwise).

Most every brokerage house has a self-directed IRA plan. The only difference between them is which investments they will allow as administrators or custodians. Most big houses (Merrill Lynch, Morgan Stanley, even Fidelity) tend to be a bit more conservative and only allow publicly traded securites or bank deposits. Others will allow direct real estate investments or individual trust deed investments. All are governed by federal law which prohibits very specific investments. Generally, those include direct investments in precious metals, collectibles, and I think stock options. Most all other investments are allowed.

There are some ominous tax consequences in making investments in non-corporate businesses (direct investment in rental property, for instance), which may require the IRA to actually pay income taxes on non-investment income. So check with your tax advisor before making that kind of investment.

Additionally, there are very specific prohibited transactions that fall into the related-party category, which would otherwise be perfectly legal investments.

It almost never makes sense to take a taxable distribution (or worse, a premature taxable distribution, in California, subject to a 12.5% penalty) in order to make an investment. Unless the investment falls into the very short list of prohibited transactions, there is rarely a reason the exact same investment can’t be made within an IRA account, usually with 80% or more funds available to make the same investment. (You can lose 45% on your investment within an IRA and still be in the same place as if you made an investment with a taxable distribution that didn’t change in value.)

If an employer matches contributions, even at 50%, it’s silly not to take advantage of it up to the maximum matching, if it’s affordable. That’s a 50% IMMEDIATE return on your investment, even if whatever your specific investment choice doesn’t earn a penny. If the ivestment choices are lousy, pick US government securities. The likelihood of them loosing significant value is remote. You’ve still made the 50% 1st year return on the investment.

If you’ve made a withdrawal that you intend to pay taxes on, you still may be able to change your mind. Any or all of it can be rolled back into and IRA within 60 days. This can only be done once a year. I just had a client use $30,000 from her IRA, as a short term loan to pay off a debt that was due, in anticipation of a $30,000 tax refund used to roll back into the IRA.

Keep in mind that if tax was withheld from the distribution, the full amount, before the withholding, has to be rolled back in. If only the net amount is rolled back in, you will still owe taxes on the withholding amount.

And finally, none of this is professional advice. If it was, you’d have to pay me gobs of money. So until I get a check in the mail, consult a competent professional before you jump.

[SK in CV]

There have been a few misconceptions thrown around in this thread, and a few things that need to be clarified. Some of these have already been covered.

Most ALL employer sponsored “retirement plans” can be rolled over, tax free, into an IRA. This includes 401Ks (and the non-profit employer versions, the 403Bs, etc), pension plans, profit sharing plans, even lump sum distributions from defined benefit plans.

Upon distribution, it almost never makes a difference whether it’s an employee’s elective deferrals of their own income into the plan or an employers funds (matching or otherwise).

Most every brokerage house has a self-directed IRA plan. The only difference between them is which investments they will allow as administrators or custodians. Most big houses (Merrill Lynch, Morgan Stanley, even Fidelity) tend to be a bit more conservative and only allow publicly traded securites or bank deposits. Others will allow direct real estate investments or individual trust deed investments. All are governed by federal law which prohibits very specific investments. Generally, those include direct investments in precious metals, collectibles, and I think stock options. Most all other investments are allowed.

There are some ominous tax consequences in making investments in non-corporate businesses (direct investment in rental property, for instance), which may require the IRA to actually pay income taxes on non-investment income. So check with your tax advisor before making that kind of investment.

Additionally, there are very specific prohibited transactions that fall into the related-party category, which would otherwise be perfectly legal investments.

It almost never makes sense to take a taxable distribution (or worse, a premature taxable distribution, in California, subject to a 12.5% penalty) in order to make an investment. Unless the investment falls into the very short list of prohibited transactions, there is rarely a reason the exact same investment can’t be made within an IRA account, usually with 80% or more funds available to make the same investment. (You can lose 45% on your investment within an IRA and still be in the same place as if you made an investment with a taxable distribution that didn’t change in value.)

If an employer matches contributions, even at 50%, it’s silly not to take advantage of it up to the maximum matching, if it’s affordable. That’s a 50% IMMEDIATE return on your investment, even if whatever your specific investment choice doesn’t earn a penny. If the ivestment choices are lousy, pick US government securities. The likelihood of them loosing significant value is remote. You’ve still made the 50% 1st year return on the investment.

If you’ve made a withdrawal that you intend to pay taxes on, you still may be able to change your mind. Any or all of it can be rolled back into and IRA within 60 days. This can only be done once a year. I just had a client use $30,000 from her IRA, as a short term loan to pay off a debt that was due, in anticipation of a $30,000 tax refund used to roll back into the IRA.

Keep in mind that if tax was withheld from the distribution, the full amount, before the withholding, has to be rolled back in. If only the net amount is rolled back in, you will still owe taxes on the withholding amount.

And finally, none of this is professional advice. If it was, you’d have to pay me gobs of money. So until I get a check in the mail, consult a competent professional before you jump.

[SK in CV]

There have been a few misconceptions thrown around in this thread, and a few things that need to be clarified. Some of these have already been covered.

Most ALL employer sponsored “retirement plans” can be rolled over, tax free, into an IRA. This includes 401Ks (and the non-profit employer versions, the 403Bs, etc), pension plans, profit sharing plans, even lump sum distributions from defined benefit plans.

Upon distribution, it almost never makes a difference whether it’s an employee’s elective deferrals of their own income into the plan or an employers funds (matching or otherwise).

Most every brokerage house has a self-directed IRA plan. The only difference between them is which investments they will allow as administrators or custodians. Most big houses (Merrill Lynch, Morgan Stanley, even Fidelity) tend to be a bit more conservative and only allow publicly traded securites or bank deposits. Others will allow direct real estate investments or individual trust deed investments. All are governed by federal law which prohibits very specific investments. Generally, those include direct investments in precious metals, collectibles, and I think stock options. Most all other investments are allowed.

There are some ominous tax consequences in making investments in non-corporate businesses (direct investment in rental property, for instance), which may require the IRA to actually pay income taxes on non-investment income. So check with your tax advisor before making that kind of investment.

Additionally, there are very specific prohibited transactions that fall into the related-party category, which would otherwise be perfectly legal investments.

It almost never makes sense to take a taxable distribution (or worse, a premature taxable distribution, in California, subject to a 12.5% penalty) in order to make an investment. Unless the investment falls into the very short list of prohibited transactions, there is rarely a reason the exact same investment can’t be made within an IRA account, usually with 80% or more funds available to make the same investment. (You can lose 45% on your investment within an IRA and still be in the same place as if you made an investment with a taxable distribution that didn’t change in value.)

If an employer matches contributions, even at 50%, it’s silly not to take advantage of it up to the maximum matching, if it’s affordable. That’s a 50% IMMEDIATE return on your investment, even if whatever your specific investment choice doesn’t earn a penny. If the ivestment choices are lousy, pick US government securities. The likelihood of them loosing significant value is remote. You’ve still made the 50% 1st year return on the investment.

If you’ve made a withdrawal that you intend to pay taxes on, you still may be able to change your mind. Any or all of it can be rolled back into and IRA within 60 days. This can only be done once a year. I just had a client use $30,000 from her IRA, as a short term loan to pay off a debt that was due, in anticipation of a $30,000 tax refund used to roll back into the IRA.

Keep in mind that if tax was withheld from the distribution, the full amount, before the withholding, has to be rolled back in. If only the net amount is rolled back in, you will still owe taxes on the withholding amount.

And finally, none of this is professional advice. If it was, you’d have to pay me gobs of money. So until I get a check in the mail, consult a competent professional before you jump.

[SK in CV]

There have been a few misconceptions thrown around in this thread, and a few things that need to be clarified. Some of these have already been covered.

Most ALL employer sponsored “retirement plans” can be rolled over, tax free, into an IRA. This includes 401Ks (and the non-profit employer versions, the 403Bs, etc), pension plans, profit sharing plans, even lump sum distributions from defined benefit plans.

Upon distribution, it almost never makes a difference whether it’s an employee’s elective deferrals of their own income into the plan or an employers funds (matching or otherwise).

Most every brokerage house has a self-directed IRA plan. The only difference between them is which investments they will allow as administrators or custodians. Most big houses (Merrill Lynch, Morgan Stanley, even Fidelity) tend to be a bit more conservative and only allow publicly traded securites or bank deposits. Others will allow direct real estate investments or individual trust deed investments. All are governed by federal law which prohibits very specific investments. Generally, those include direct investments in precious metals, collectibles, and I think stock options. Most all other investments are allowed.

There are some ominous tax consequences in making investments in non-corporate businesses (direct investment in rental property, for instance), which may require the IRA to actually pay income taxes on non-investment income. So check with your tax advisor before making that kind of investment.

Additionally, there are very specific prohibited transactions that fall into the related-party category, which would otherwise be perfectly legal investments.

It almost never makes sense to take a taxable distribution (or worse, a premature taxable distribution, in California, subject to a 12.5% penalty) in order to make an investment. Unless the investment falls into the very short list of prohibited transactions, there is rarely a reason the exact same investment can’t be made within an IRA account, usually with 80% or more funds available to make the same investment. (You can lose 45% on your investment within an IRA and still be in the same place as if you made an investment with a taxable distribution that didn’t change in value.)

If an employer matches contributions, even at 50%, it’s silly not to take advantage of it up to the maximum matching, if it’s affordable. That’s a 50% IMMEDIATE return on your investment, even if whatever your specific investment choice doesn’t earn a penny. If the ivestment choices are lousy, pick US government securities. The likelihood of them loosing significant value is remote. You’ve still made the 50% 1st year return on the investment.

If you’ve made a withdrawal that you intend to pay taxes on, you still may be able to change your mind. Any or all of it can be rolled back into and IRA within 60 days. This can only be done once a year. I just had a client use $30,000 from her IRA, as a short term loan to pay off a debt that was due, in anticipation of a $30,000 tax refund used to roll back into the IRA.

Keep in mind that if tax was withheld from the distribution, the full amount, before the withholding, has to be rolled back in. If only the net amount is rolled back in, you will still owe taxes on the withholding amount.

And finally, none of this is professional advice. If it was, you’d have to pay me gobs of money. So until I get a check in the mail, consult a competent professional before you jump.

[clearfund]

SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.

[clearfund]

SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.

[clearfund]

SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.

[clearfund]

SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.

[clearfund]

SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.

[SK in CV]

[quote=clearfund]SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.[/quote]

Generally, normal plan distributions require some sort of triggering event, like termination of employment or death. Distributions while still employed normally fall into three categories. The first two, hardship and corrections of elective employee contributions in excess of qualified amounts are not elible for rollover. The third, would distributions on attainment of normal retirement age. This would be the case where an employee reaches normal retirement age (by either 70 1/2 or earlier if so specified by the plan) but continues to work. If the distribution is in the form of a lump sum, it can be rolled over. If it is part of a series of periodic payments, it can’t be rolled over.

Other distributions while still employed are rare. (The most common would be upon termination of a plan.) There may be some 401K type plans which allow for withdrawal of employee contributions prior to termination (other than loans), though I’ve never seen that to be the case. (There may even be an ERISA prohibition against it, I’m not really sure.) Loans which are not repaid and become delinquent can be considered distributions and are not elible for rollover.

[SK in CV]

[quote=clearfund]SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.[/quote]

Generally, normal plan distributions require some sort of triggering event, like termination of employment or death. Distributions while still employed normally fall into three categories. The first two, hardship and corrections of elective employee contributions in excess of qualified amounts are not elible for rollover. The third, would distributions on attainment of normal retirement age. This would be the case where an employee reaches normal retirement age (by either 70 1/2 or earlier if so specified by the plan) but continues to work. If the distribution is in the form of a lump sum, it can be rolled over. If it is part of a series of periodic payments, it can’t be rolled over.

Other distributions while still employed are rare. (The most common would be upon termination of a plan.) There may be some 401K type plans which allow for withdrawal of employee contributions prior to termination (other than loans), though I’ve never seen that to be the case. (There may even be an ERISA prohibition against it, I’m not really sure.) Loans which are not repaid and become delinquent can be considered distributions and are not elible for rollover.

[SK in CV]

[quote=clearfund]SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.[/quote]

Generally, normal plan distributions require some sort of triggering event, like termination of employment or death. Distributions while still employed normally fall into three categories. The first two, hardship and corrections of elective employee contributions in excess of qualified amounts are not elible for rollover. The third, would distributions on attainment of normal retirement age. This would be the case where an employee reaches normal retirement age (by either 70 1/2 or earlier if so specified by the plan) but continues to work. If the distribution is in the form of a lump sum, it can be rolled over. If it is part of a series of periodic payments, it can’t be rolled over.

Other distributions while still employed are rare. (The most common would be upon termination of a plan.) There may be some 401K type plans which allow for withdrawal of employee contributions prior to termination (other than loans), though I’ve never seen that to be the case. (There may even be an ERISA prohibition against it, I’m not really sure.) Loans which are not repaid and become delinquent can be considered distributions and are not elible for rollover.

[SK in CV]

[quote=clearfund]SK – There is no confusion relating to the ability to roll over all funds from an employer plan to a new IRA after you have moved on (100% can do that)

Where there is little clear direction is what can be rolled over while you are still employed. This is the reason my response was to ask precise questions of your plan administrator. I’ve seen restrictions of many kinds while still employed.

Unfortunately I’ve never heard a clear yes/no answer. Hopefully there is someone out there who knows.[/quote]

Generally, normal plan distributions require some sort of triggering event, like termination of employment or death. Distributions while still employed normally fall into three categories. The first two, hardship and corrections of elective employee contributions in excess of qualified amounts are not elible for rollover. The third, would distributions on attainment of normal retirement age. This would be the case where an employee reaches normal retirement age (by either 70 1/2 or earlier if so specified by the plan) but continues to work. If the distribution is in the form of a lump sum, it can be rolled over. If it is part of a series of periodic payments, it can’t be rolled over.

Other distributions while still employed are rare. (The most common would be upon termination of a plan.) There may be some 401K type plans which allow for withdrawal of employee contributions prior to termination (other than loans), though I’ve never seen that to be the case. (There may even be an ERISA prohibition against it, I’m not really sure.) Loans which are not repaid and become delinquent can be considered distributions and are not elible for rollover.

[Author]

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