Rolling over Wife's Traditional 401K to IRA

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Topic Author
arengarajsug88
Posts: 60
Joined: Fri Jan 04, 2019 2:55 pm

Rolling over Wife's Traditional 401K to IRA

Post by arengarajsug88 » Fri Jan 11, 2019 6:48 pm

I am trying to rollover my wife's old traditional 401K (at Bank of America Meryl Lynch) to an IRA (preferably Roth IRA) at Vanguard. She has about $2k in her old 401k account. New employer does not have a 401k plan. I learnt that we owe taxes if traditional 401k is rolled-over as a rollover IRA.

1. How is the tax calculated? Is it automatically taxed when the account is rolled-over or should we compute the tax and pay it separately?
2. Is it good to roll-over her account to Roth IRA? We both like tax-free Roth IRA's.
3. Can she still have the Roth IRA under her name in Vanguard? I have my traditional 401k, and roth IRA already at Vanguard.
4. What are some good ETF's to invest wife's roth IRA money? I assume $2k would not be sufficient to invest in any vanguard mutual fund as most of them require $3k investment minumum?

Thank you!

02nz
Posts: 2267
Joined: Wed Feb 21, 2018 3:17 pm

Re: Rolling over Wife's Traditional 401K to IRA

Post by 02nz » Fri Jan 11, 2019 7:05 pm

arengarajsug88 wrote:
Fri Jan 11, 2019 6:48 pm
I am trying to rollover my wife's old traditional 401K (at Bank of America Meryl Lynch) to an IRA (preferably Roth IRA) at Vanguard. She has about $2k in her old 401k account. New employer does not have a 401k plan. I learnt that we owe taxes if traditional 401k is rolled-over as a rollover IRA.

1. How is the tax calculated? Is it automatically taxed when the account is rolled-over or should we compute the tax and pay it separately?
2. Is it good to roll-over her account to Roth IRA? We both like tax-free Roth IRA's.
3. Can she still have the Roth IRA under her name in Vanguard? I have my traditional 401k, and roth IRA already at Vanguard.
4. What are some good ETF's to invest wife's roth IRA money? I assume $2k would not be sufficient to invest in any vanguard mutual fund as most of them require $3k investment minumum?

Thank you!
1. It depends on whether you just roll over to a traditional IRA, which has no tax implications, or convert some or all of it to a Roth. Any amount you convert to Roth will be reported as taxable income, but at $2K it won't be too much. (Note on terminology: a "rollover IRA" is generally just a traditional IRA, opened for the purpose of accepting an incoming transfer from a 401k plan. This is how Vanguard uses the term. So rollover IRA does NOT generally mean the same thing as a Roth IRA.)

2. It depends on your current tax rate. Generally I wouldn't convert if in the 22% or higher federal tax bracket. Roth IRAs are wonderful, but the best way of getting there is (for many) to do conversions in low-income years, i.e. after retiring and ideally before starting SS or pension benefits. But, again, at $2K it doesn't matter too much.

3. Do you mean to ask whether she can have both a traditional and a Roth IRA at Vanguard? Absolutely. And where your accounts are doesn't affect her.

4. Depends on your overall asset allocation. Vanguard's Total Stock Market (VTI) or S&P500 (VOO) ETFs are perfectly sensible choices.
Last edited by 02nz on Fri Jan 11, 2019 7:11 pm, edited 1 time in total.

krow36
Posts: 2213
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Rolling over Wife's Traditional 401K to IRA

Post by krow36 » Fri Jan 11, 2019 7:09 pm

arengarajsug88 wrote:
Fri Jan 11, 2019 6:48 pm
I am trying to rollover my wife's old traditional 401K (at Bank of America Meryl Lynch) to an IRA (preferably Roth IRA) at Vanguard. She has about $2k in her old 401k account. New employer does not have a 401k plan. I learnt that we owe taxes if traditional 401k is rolled-over as a rollover IRA.
A "rollover IRA" is a traditional IRA so there are no taxes due when it is rolled over.

1. How is the tax calculated? Is it automatically taxed when the account is rolled-over or should we compute the tax and pay it separately?
2. Is it good to roll-over her account to Roth IRA? We both like tax-free Roth IRA's.
I would roll it over to Vanguard and convert it to a Roth IRA there.
3. Can she still have the Roth IRA under her name in Vanguard? I have my traditional 401k, and roth IRA already at Vanguard. Of course. The I in IRA stands for Individual.
4. What are some good ETF's to invest wife's roth IRA money? I assume $2k would not be sufficient to invest in any vanguard mutual fund as most of them require $3k investment minumum? Vanguard Target Retirement funds have a 1k minimum.

Thank you!

Topic Author
arengarajsug88
Posts: 60
Joined: Fri Jan 04, 2019 2:55 pm

Re: Rolling over Wife's Traditional 401K to IRA

Post by arengarajsug88 » Sat Jan 12, 2019 7:41 pm

Thank you! Did not know Vanguard Target retirement fund is available as an option for IRA! Will explore that.

Topic Author
arengarajsug88
Posts: 60
Joined: Fri Jan 04, 2019 2:55 pm

Re: Rolling over Wife's Traditional 401K to IRA

Post by arengarajsug88 » Sat Jan 12, 2019 7:54 pm

02nz wrote:
Fri Jan 11, 2019 7:05 pm
arengarajsug88 wrote:
Fri Jan 11, 2019 6:48 pm
I am trying to rollover my wife's old traditional 401K (at Bank of America Meryl Lynch) to an IRA (preferably Roth IRA) at Vanguard. She has about $2k in her old 401k account. New employer does not have a 401k plan. I learnt that we owe taxes if traditional 401k is rolled-over as a rollover IRA.

1. How is the tax calculated? Is it automatically taxed when the account is rolled-over or should we compute the tax and pay it separately?
2. Is it good to roll-over her account to Roth IRA? We both like tax-free Roth IRA's.
3. Can she still have the Roth IRA under her name in Vanguard? I have my traditional 401k, and roth IRA already at Vanguard.
4. What are some good ETF's to invest wife's roth IRA money? I assume $2k would not be sufficient to invest in any vanguard mutual fund as most of them require $3k investment minumum?

Thank you!
1. It depends on whether you just roll over to a traditional IRA, which has no tax implications, or convert some or all of it to a Roth. Any amount you convert to Roth will be reported as taxable income, but at $2K it won't be too much. (Note on terminology: a "rollover IRA" is generally just a traditional IRA, opened for the purpose of accepting an incoming transfer from a 401k plan. This is how Vanguard uses the term. So rollover IRA does NOT generally mean the same thing as a Roth IRA.)

2. It depends on your current tax rate. Generally I wouldn't convert if in the 22% or higher federal tax bracket. Roth IRAs are wonderful, but the best way of getting there is (for many) to do conversions in low-income years, i.e. after retiring and ideally before starting SS or pension benefits. But, again, at $2K it doesn't matter too much.

3. Do you mean to ask whether she can have both a traditional and a Roth IRA at Vanguard? Absolutely. And where your accounts are doesn't affect her.

4. Depends on your overall asset allocation. Vanguard's Total Stock Market (VTI) or S&P500 (VOO) ETFs are perfectly sensible choices.
Thank you!

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