Advice / ?'s on incoming funds

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Advice / ?'s on incoming funds

Postby vacationer » Wed Apr 03, 2013 8:30 am

All, I would like some advice / feedback and also have a few questions on some money that I am expected to receive in the next few weeks. Just to give you a little background, I took a 401K from a previous employer that was converted to an IRA (due to severance package) and invested that into a company as a self-directed IRA to buy their stock.

Well the time has come for me to get those funds back (due to a merger / acquisition) of the company and the “cash” from the sale will be put back into an IRA account and I assume will sit there until I figure out what I am going to do with it. The initial investment was 40K and has just about doubled in the 5 or so years that I have had it invested with this particular company.

So my questions are:

1. The most obvious, next steps for the money….I don’t really want to leave it with the company that it is going back to (NY Life) and was thinking about trying out Vanguard?

2. Should I be a little bit “riskier” with this investment as far as AA since I/we have other retirement accounts that we contribute to? (70/30 or 80/20) Our current AA is around a 65/35 with our other investments (401K / Roth’s).

3. Can I roll / convert these funds over to a Roth or should I leave as a TIRA even if I decide to go with Vanguard?

4. I was reading online and came across an article on the benefits of a Roth versus a TIRA and saw a comment that concerned me a bit: “You have to be careful if you have other zero basis (pre-tax) trad IRAs because the IRS does not allow you to pick and choose which basis (or lot) you want to use for the money you are converting.” I am not quite sure I follow what the comment is referencing? Any assistance with explaining that a little clearer would be greatly appreciated.

As mentioned above, my wife and I have other investment “vehicles”:

Her: 401K / Roth
Me: Pension (Gov’t) / Roth

Finally, is there anything that I am missing or didn’t think about that you can provide advice and guidance on?

Any feedback is welcome and I will do my best to answer even though I am no expert in this arena.

Thanks…..
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Re: Advice / ?'s on incoming funds

Postby toblerone » Wed Apr 03, 2013 9:11 am

vacationer wrote:4. I was reading online and came across an article on the benefits of a Roth versus a TIRA and saw a comment that concerned me a bit: “You have to be careful if you have other zero basis (pre-tax) trad IRAs because the IRS does not allow you to pick and choose which basis (or lot) you want to use for the money you are converting.” I am not quite sure I follow what the comment is referencing? Any assistance with explaining that a little clearer would be greatly appreciated.

I'll give it a shot.
If you have one or more traditional IRAs with pre-tax dollars, the IRA considers the pre-tax dollars in all of your traditional IRAs when calculating the tax for conversion, no matter the age of the investments, age of accounts, or how much is in them. In other words you can't pick and choose which pre-tax money to convert - it is all one big pile according to the IRS, and your tax for conversion is determined "pro rata" based on the sum of all your pre- and post-tax dollars, and the amount your are converting. Hope this is more clear.
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Re: Advice / ?'s on incoming funds

Postby vacationer » Thu Apr 04, 2013 9:44 am

toblerone-

Thanks for the feedback. I think I understand now, I was a little confused because we have a 401K (my wife) and I wasn't sure if that would be included or not. But then I realized 401K is not considered a TIRA because it is funded with pre-tax dollars. So all in all if this is my only TIRA, then I should be ok and not have to worry about anything else?

Also, anyone else out there have any feedback / suggestions on the rest of the questions or how to exactly "invest" the incoming funds?

Thanks for any assistance you can provide.....
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Re: Advice / ?'s on incoming funds

Postby bayview » Fri Apr 05, 2013 11:15 pm

Anything that is termed a tIRA is included in the pool of money that is considered for conversion to a Roth, no matter where it came from, what it's invested in, or where it's housed (Vanguard, Fidelity, etc.)

I'm very, very much a noob on this, but my take-away on this is that it's to your advantage if your portion of money in tIRA's isn't that big. If so, go ahead and convert your tIRA (or some portion thereof) before moving 401k's over to tIRA's. That way you won't have to move all your tax-advantaged accounts. If there are more funds (but not all) that you want to move to Roths, move only that amount to 401k's, and then switch.

Someone please tell me that I've read this right...

eta: I'm concerned about what you wrote here: "But then I realized 401K is not considered a TIRA because it is funded with pre-tax dollars." They're both funded with pre-tax dollars, and you'll pay income tax on both when you withdraw. The difference is that a 401k (or 403b, or TSP, etc.) is an employer-sponsored plan, where they may or may not match part of your contributions, and they control the selection of available investment options, vs a tIRA which is controlled by you (and by whichever IRA provider you choose, of course.) You can fund a 401k etc up to $17,500 ($23,000 if you're over 50), but an IRA is limited to $5,500 ($6,500 if you're over 60.)

So basically, they're both pre-tax-funded retirement plans, but 401k's and friends are employer-sponsored with much higher limits (but a limited selection of investment options), and IRA's are controlled by you but with much lower limits (but generally a lot more options.)

It's Roths, of whatever variety, that are funded by post-tax funds. So you will pay tax on whatever you put into a Roth, but when the time comes that you pull money back out, you don't pay tax on your original investment, and you don't pay tax on whatever growth has occurred on top of your original investment.
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Re: Advice / ?'s on incoming funds

Postby Default User BR » Sat Apr 06, 2013 1:38 am

vacationer wrote:Thanks for the feedback. I think I understand now, I was a little confused because we have a 401K (my wife) and I wasn't sure if that would be included or not. But then I realized 401K is not considered a TIRA because it is funded with pre-tax dollars.

It's not a TIRA because it isn't an IRA of any sort. TIRAs can be, and often are, funded with pre-tax amounts. 401(k)s can be funded with pre-tax, after-tax Roth, or after-tax non-Roth amounts.


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