401K to traditional IRA questions

[Chris73]

Since I have been reading this forum, I have become interested in contributing to an IRA (haven't started yet; still gathering info). I owe less than $300 on my federal return this year, and I think the deduction from contributing to a Traditional IRA by April 15th would take care of the tax I owe and hopefully give me a small refund.

I have 2 401K's. My old one from when I was married is worth around $14,000. Perhaps I can roll this over into a Traditional 401K. Can I rollover the whole amount, or should I try rolling over $5500 this year, then again next year, etc until it's all moved? In other words, I know the max contribution to a Traditional IRA for me is $5500 per year; does this apply to a 401K rollover? I would rather roll it all over and have it done with. Also, will I be able to deduct this on my return if it is from a 401K rollover as opposed to a normal contribution?

Eventually I think I will contribute to a Roth IRA instead of traditional (if this would be better in the long-run). I just thought I may take advantage of the tax deductions until I reach some other financial goals.

I'm sorry for the probably dumb questions. I'm so new to this. I am 41 though, and I really feel I should pay closer attention to saving for retirement. I had previously been in survival/debt payoff mode, which I am also in still. However, I have been wondering about all of the time and earnings I would be losing if I wait until I am completely out of debt before making IRA contributions.

[Petunia 100]

Since I have been reading this forum, I have become interested in contributing to an IRA (haven't started yet; still gathering info). I owe less than $300 on my federal return this year, and I think the deduction from contributing to a Traditional IRA by April 15th would take care of the tax I owe and hopefully give me a small refund.

I have 2 401K's. My old one from when I was married is worth around $14,000. Perhaps I can roll this over into a Traditional 401K. Can I rollover the whole amount, or should I try rolling over $5500 this year, then again next year, etc until it's all moved? In other words, I know the max contribution to a Traditional IRA for me is $5500 per year; does this apply to a 401K rollover? I would rather roll it all over and have it done with. Also, will I be able to deduct this on my return if it is from a 401K rollover as opposed to a normal contribution?

Eventually I think I will contribute to a Roth IRA instead of traditional (if this would be better in the long-run). I just thought I may take advantage of the tax deductions until I reach some other financial goals.

I'm sorry for the probably dumb questions. I'm so new to this. I am 41 though, and I really feel I should pay closer attention to saving for retirement. I had previously been in survival/debt payoff mode, which I am also in still. However, I have been wondering about all of the time and earnings I would be losing if I wait until I am completely out of debt before making IRA contributions.

Hi Chris,

There are no dumb questions. That is how we learn.

Rollovers do not count as contributions. Rolling over an existing 401k to a traditional IRA will not affect your taxable income for 2014.

There is no limit to how much you may rollover.

You do have until 4/15/15 to make a traditional IRA contribution for 2014. You can go ahead and claim a traditional IRA contribution on your tax return, just don't forget to make it by 4/15/15.

Unless you have debt at very high interest rates, I personally think saving regularly for retirement should be a higher priority. Especially at age 41 with not much saved yet.

[Chris73]

Thanks Petunia!

Given this information, I think I will go ahead and rollover my old 401K to a traditional IRA. Also I will save as much as I can through April 15th to contribute to a traditional IRA. Even if I can't save the whole $5500 by then, it will at least be a good start.

Maybe later on I can transfer my traditional IRA to a Roth IRA. My plan is to do this after I pay off debt and have a fully funded EF of 3-6 months. Then I hope to adjust my W-4 to have more withheld throughout the year, so hopefully I won't have to worry about owing so much on my tax return from the conversion.

I still have a lot to learn. Thanks for your encouragement!

[JustBill]

Thanks Petunia!

Given this information, I think I will go ahead and rollover my old 401K to a traditional IRA. Also I will save as much as I can through April 15th to contribute to a traditional IRA. Even if I can't save the whole $5500 by then, it will at least be a good start.

Maybe later on I can transfer my traditional IRA to a Roth IRA. My plan is to do this after I pay off debt and have a fully funded EF of 3-6 months. Then I hope to adjust my W-4 to have more withheld throughout the year, so hopefully I won't have to worry about owing so much on my tax return from the conversion.

I still have a lot to learn. Thanks for your encouragement!

Before you proceed with the rollover, I encourage you to learn the ERISA protection that a 401k may offer over that of an IRA. Depending largely on your state of residence. If you're not satisfied with the investment options where the assets currently reside, perhaps the 401k at your present employer will (1) offer better investment options, and (2) accept a rollover from your previous employer's plan(s).

[snafu]

I ask that you decide on IRA allocation, [how you split the sum being moved] and learn exactly what the current management charges and future costs. It's often a good plan to have the incoming service carry out the transfer so that it is all done correctly without tax consequences to you.

Does your employer offer any matching funds i n their program? What is your money invested in and what are the management charges? You need this information to move forward.

[Chris73]

Thanks JustBill and snafu,

It appears that I have a lot more to learn. I have not started any rollover yet, thankfully. I had not heard of ERISA protection, so I will definitely need to check into it.

This is an old 401K plan from my ex's former employer which I was awarded through a QDRO during divorce in May 2009. The balance at that time was around $9000. It has grown to $14,000 with no further contribution. I've pretty much known it was there, but have not given much thought to it because I have been more focused on day-to-day living. Very recently, I have started to give more thought toward saving for retirement.

These are somewhat rough figures for what it is invested in (% = portion of total investment allocated toward a particular fund):

Guaranteed Income Fund - 25.13%
--Net Expense Ratio in % is 0.40
Core Bond Enhanced Index/PIM Fund - 4.12%
--Net Expense Ratio in % is 0.37
Oakmark Equity & Income Fund I - 8.33%
--Net Expense Ratio in % is 0.77
American Funds Growth Fund Amer A - 25.66%
--Net Expense Ratio in % is 0.66
Columbia Mid Cap Index A - 23.57%
--Net Expense Ratio in % is 0.46
Franklin Small-Mid Cap Growth A - 5.90%
--Net Expense Ratio in % is 0.96
American Funds EuroPac Growth A - 7.27%
--Net Expense Ratio in % is 0.84

I am going to be displaying my ignorance by saying this, but I have no idea what a net expense ratio is. I also do not know what the management charges.

I truly have so much to learn. Maybe it would be better to leave it where it is until I can understand the whole picture.