401k and IRA Question

[questions]

Hi, I’m young and just starting out in my career. I have about $2,300 from my previous employer’s 401k plan through Charles Schwab. They just sent me a letter telling me they are rolling it into an IRA for me. However, I don’t want my small sum to be eaten by fees. I’d like to put it somewhere (tax free) where I can access it to help with buying my first home. I don’t want to add it to my current plan but don’t know what would be best, most affordable and accessible for home buying.

I’ve read tons of blogs and articles but I’m not familiar with the language/products and they don’t seem to fit with my situation.

Thanks for your help!

[disneysteve]

I don't think you should raid your retirement account in order to buy a home. Save separately for the down payment. Retirement accounts are for retirement and nothing else.

[fruitbowlk]

I agree with Disneysteve.

[MonkeyMama]

I'd roll the IRA over to somewhere with no fees. You could put it in Vanguard in the STAR fund (their only fund with $1k minimum. The rest are $3k). If you get electronic statements, there are no fees. Once your balance hit $3k, I'd buy the Vanguard Target Retirement fund that is apporpriate for your age.

Places like T Rowe & Fidelity, you could invest that amount with no broker fees. You could buy their Target Retirement funds.

Anyway, worse, if you take the money out, it will be eaten by taxes and penalties. I wouldn't touch 401k money for a house, either.

[TheColonel]

The 1997 Taxpayer Relief Act allows individuals to withdraw funds from their traditional IRAs to pay up to $10,000 of first-time homebuyer expenses without incurring the 10% early withdrawal penalty.

Depending on your tax bracket, time frame and purchase price, it may be best to contribute to your IRA and then withdraw the money from there because of potential tax advantages. If you choose to roll your account over to a Roth IRA, your account must be established for five tax years before a withdrawing without a penalty. There are also some other distribution rules associated with a Roth IRA.

I suggest talking with at least a few different qualified financial advisors for your specific situation.