Laid Off Tuesday.

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WilliamRice
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Laid Off Tuesday.

Post by WilliamRice »

I was let go from my company on Tuesday after six years. My 401k balance is at $45,000.00 through Wachovia. I was wondering about rolling into my Vanguard rothIRA, I don't even really know why I am asking this or why I would want to do this (I guess it would be whichever has lower fees and or whichever is a better performer, is that correct?)

Is this a logical thing to do. I have never been let go before so I am still a little unsure about everything that needs to be addressed so I don't want to make any drastic and/or uneducated decisions.

My wife still works and I will get unemployment. Another question about that is that I am a designer and can freelance, does anyone know about how much you can earn while on unemployment?

I'm sorry is these two questions seem a little random but I am trying to quickly rebalance because i realize that even after a day of not working I am going a little stir crazy. Any advice/suggestions would be grateful. Thanks!
coinflip
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Post by coinflip »

Sorry that you lost your job. You seem to be handling it well.

You should be able to roll your 401k into a Traditional IRA account at Vangaurd (or wherever else you like).

You could then convert the Traditional IRA funds to a Roth IRA. If your 401k contributions were pretax, you would have to pay taxes on the contributions and any earnings if you convert to a Roth IRA.

So if all you are after is lower fees and more choices, rolling over to a Traditional IRA makes sense. Paying taxes to convert to a Roth IRA could also make sense if you think your tax rate will be higher in retirement than it is now and if you can afford the tax hit.
coinflip
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Post by coinflip »

double post
Last edited by coinflip on Thu May 26, 2011 7:32 am, edited 1 time in total.
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verbose
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Post by verbose »

Sorry about your job.

I'll attempt to provide some info on your first question, no idea about the second.

It's usually a good idea to roll over 401k funds, rather than leave them with a former employer's plan. Even if expenses were similar (and they're probably not), the employer plan is managed through the former employer's HR. Your former employer can switch 401k providers, discontinue fund options, etc. and you're pretty much out of the loop.

I don't think you can directly roll 401k funds into a Roth IRA. I'm sure there's a way to get the money there, but if you do, you'll have to pay income taxes on $45,000.

Instead, you should be considering rolling the 401k into a rollover IRA (aka traditional IRA, or tIRA). You won't owe taxes on that, and it will be separate from your Roth IRA.

If you call Vanguard, they'll walk you through the rollover process and help you fill out and print the forms to send to your former employer's HR department.

Before you call Vanguard, you should research the funds available and decide on your asset allocation. If you don't want to think about this right now, look at the asset allocation currently in your 401k, choose index funds in similar asset classes in the same percentages, and just go with that for now.

You should expect that when you rollover, your 401k will take around $50 from your account as a "transfer fee" or whatever they decide to call it. Nearly all of them do this.

Good luck!
Live Free or Diehard
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Re: Laid Off Tuesday.

Post by Live Free or Diehard »

WilliamRice wrote:I was let go from my company on Tuesday after six years. My 401k balance is at $45,000.00 through Wachovia. I was wondering about rolling into my Vanguard rothIRA, I don't even really know why I am asking this or why I would want to do this (I guess it would be whichever has lower fees and or whichever is a better performer, is that correct?)
Is your 401k a Roth 401k? Or is it a traditional 401k? If it's a traditional 401k you'll have to pay taxes on the conversion to the Roth IRA.
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amdmaxx
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Post by amdmaxx »

Someone who just lost their job is most likely not in a position to pay taxes on 45k conversion to Roth IRA, unless they have spare cash to pay those taxes during tax season (or expect to find a new job soon).
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nisiprius
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Post by nisiprius »

I've been laid off twice, it is a truly sucky experience, and the worst are people telling you that "there's no shame in it any more." It's not about the shame, it's about the money! Good luck.

There might be special cases but as a general rule, yes, you should establish a rollover IRA at some brokerage you like and roll your 401(k) into it. And once you have the IRA set up, then every time you separate from a job with a 401(k), roll that 401(k) into it, and so on.

There's no reason to look at it as a big or agonizing decision. When I rolled over my 401(k)'s into a rollover IRA, it was really a non-event--I just started getting statements from a different company, and suddenly could choose any mutual funds I wanted--including Vanguard's, which happened to be the funds I wanted.

(Converting something that's not a Roth into a Roth is a tricky decision, but that's a completely different issue. You should probably avoid that, it's the last thing you want to deal with. If you have an ordinary 401(k) and you roll it over into a "traditional" rollover IRA, you can always pay the taxes and convert the traditional IRA to a Roth IRA at some later date).

The reason why you should do this is that there are a few fairly good reasons to do it and no good reasons not to, except in very special cases (for example, if you have some investment in the 401(k) you can't get elsewhere that you want to keep).

Trust your chosen brokerage to be knowledgeable and helpful about this. They love 401(k) transfers and will be glad to spend time patiently talking over the details and doing whatever it takes to get your business.

The reasons for routinely rolling over your 401(k) whenever you leave a company it typically include: a) avoiding fragmentation; consolidating your retirement portfolio into as few accounts as possible, just so you don't go nuts trying to track and manage it all; b) (usually) a much wider choice of mutual funds at a brokerage than in the 401(k); c) avoidance of hidden fees--the identical mutual fund costs you more in a 401(k) than it does at a brokerage.

I think Vanguard and Vanguard Brokerage Services would be one of any number of good choices.

One last note. If something goes wrong and if by some chance you get mailed a check for $45,000, don't panic but don't dawdle. You have a fairly short period of time to get it safely into a custodian's hands, and if it were me I'd phone the IRS and ask them exactly what need to do to get it done properly.
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avalpert
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Post by avalpert »

You got plenty of advice on the 401k. Regarding freelancing while on unemployment, the specifics vary by state but you are typically aloud to earn a certain amount before it begins to reduce your unemployment check, above that amount it will cut into your unemployment but never resulting in total income less than the unemployment amount.

Check with your state unemployment office (or the state where you will be filing unemployment) for specific rules.
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Jay69
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Post by Jay69 »

Nothing new to add, sorry about the layoff.

Sounds like you may find work shortly.

Been on the fence of a layoff here for the past 3 months, its not a great feeling.

Good Luck

Jay
"Out of clutter, find simplicity” Albert Einstein
compounder
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Post by compounder »

I would encourage you to file for unemployment right away. The sooner the better. In general your unemployment compensation will not begin until you file, so no sense in waiting. Most states allow you to file online and their websites will answer most if not all of your questions.

I'm sorry you were laid off. Keep the faith.
Patchy Groundfog
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Post by Patchy Groundfog »

nisiprius wrote:One last note. If something goes wrong and if by some chance you get mailed a check for $45,000, don't panic but don't dawdle. You have a fairly short period of time to get it safely into a custodian's hands, and if it were me I'd phone the IRS and ask them exactly what need to do to get it done properly.
For a direct rollover, the check has to be made payable to the new custodian, something like "Vanguard Inc. FBO William Rice". If it's mailed to you, you have 60 days, I think, to get it to Vanguard or whoever. Several years ago my credit union mailed a rollover check to me although they had instructions about where to send it. I called Vanguard and was reassured that as long as I wasn't the payee and I got the check to them within the required time period there wouldn't be a problem, and there wasn't.
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Default User BR
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Post by Default User BR »

Patchy Groundfog wrote:Several years ago my credit union mailed a rollover check to me although they had instructions about where to send it. I called Vanguard and was reassured that as long as I wasn't the payee and I got the check to them within the required time period there wouldn't be a problem, and there wasn't.
Many institutions will only mail the check to the address of record. Its a security thing. My 401(k) explicitly says that in the instructions for distributions.



Brian
Carl53
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Post by Carl53 »

I rolled mine over to Vanguard. It took better than a month till I was able to invest from when I initiated the effort. At the time it was nerve wracking (October 2008 - need I say more).

A couple of things to think about: You may have some of your 401k money in a stable value fund that pays better than 3%. You will not find something equivalent to the stable fund with Vanguard nor I believe with other providers. I'm not sure why not, but that seems to be the case. Secondly, if you are approaching 55 or are there already, by leaving the funds in the 401k you leave the option to remove equal increments from the 401k under a 72t regulation without any penalty. This option will not be available to you with the rollover IRA.

For me rolling over was good, but my timing was horrible.
Pats_Fan
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Post by Pats_Fan »

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Last edited by Pats_Fan on Fri Dec 21, 2018 9:40 am, edited 1 time in total.
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Babakhani
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Post by Babakhani »

I am sorry about your job. I will just give you general advice. When I reflect back on my life, I have come to the conclusion that a "negative" event in one's life can be a good thing. It may be temporarily hurtful but you never know what good things will come as a result of this.

The worst thing you can do is feel sorry for yourself. Just take a few days to regroup, think clearly, don't do anything drastic for a couple weeks, talk to people to collect data, and keep chugging.

In the words of one of the avid posters on this forum: Neverknow.
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e5116
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Post by e5116 »

Pats_Fan wrote:I was let go from a large pharmaceutical company in December, so I know how you feel.

One reason NOT to rollover 401k assets is that these assets would be included (when determining taxes owed) if one funds a Roth IRA through the "back door".

Dave
^I was going to say the same thing, and I think people are downplaying this. Depending on your future earnings and contribution plans, it might be best to NOT rollover your 401k. Yes, it gives you perhaps better brokerage options, but if you're content with your 401k and the net expense ratios are low, then you might want to keep it in there until otherwise necessary. If you want to do a backdoor Roth and converted your 401k to a Traditional IRA, those assets are going to be included. If you have already have a deductible IRA, those assets are also going to be included. If your combined income is or will be >$167,000 and you want to contribute to a Roth through the backdoor method, then staying put might be the best course of action unless you want to put it in a Rollover IRA and then immediately convert to a Roth.

In addition to the above, the bankruptcy laws for a 401k and IRA assets are different. In general, 401k assets have more protection than IRA assets. So, while it may make sense to roll it over right now, it may also not. Depends on what your plan for the future is. If your fees are low in the 401k and the offerings are reasonable, there's no huge rush in my mind.
livesoft
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Post by livesoft »

I would not be in any hurry to do anything with the Wachovia 401(k). Your future is cloudy for the moment and anything you do with your 401(k) money (except leave it alone) may not be the best thing to do depending on what happens in the next 6 months.

If you get a new job with a nice 401(k) you may wish to roll your old 401(k) into the new 401(k) if allowed. There are many advantages to that some (but not all) have already been mentioned.

If your new job has a terrible 401(k), then a rollover into an IRA might be warranted, but maybe not as leaving the money in a 401(k) could be advantageous (though it would have to better than I imagine a Wachovia 401(k) to be).

Anyways, don't make any decision for a while.
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hsv_climber
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Post by hsv_climber »

Another thing to consider - if you won't get a new job any time soon (yes, it sucks, but it should be considered) then you might want to consider doing a conversion to Roth (i.e. 401K -> rollover IRA -> roth IRA).

Conversion to Roth might make sense if you'd be in a lower tax bracket than your expected tax bracket during work years & retirement.
moretolearn
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Re: Laid Off Tuesday.

Post by moretolearn »

I'm sorry to hear about the layoff.
WilliamRice wrote:My wife still works and I will get unemployment. Another question about that is that I am a designer and can freelance, does anyone know about how much you can earn while on unemployment?
avalpert had good advice about checking with your local unemployment office about earnings. If you're freelancing, you might earn nothing some weeks, a little bit some weeks, and maybe a lot from time to time. In some states (California I think for one), you send in a form every week or two and tell them how much you made. They'll reduce your check by some amount for that period, but then if you have no paying work the next period, you'll get the full check for that week. So it's not like landing one or two good freelance jobs will wipe out your whole unemployment benefit.

Good luck with your next steps!
sport
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Post by sport »

If your 401k is pre-tax and you decide to roll it into an IRA, it should be done properly to avoid tax withholding. If the 401k custodian sends the check directly to your IRA custodian, there is no problem. If they send the check to you there are two possibilities, one good, one bad.

If they make the check payable to your new custodian, there is no problem. You just forward the check. If they make the check out to you, you have two problems. The first is easy. You must re-invest the money in your IRA within 60 days. The second can be a real problem. If the check is made payable to you, they will withhold 20% for income taxes, by law. However, any money that is not rolled into a new plan becomes a withdrawal subject to tax and penalties if you are younger than 59.5. Therefore, to avoid tax and penalties in this situation, you must provide the 20% amount from other money and add it to your deposit into your IRA. If you cannot do this, the withheld money becomes a withdrawal, you get to pay tax and penalty, and you cannot redeposit it when you get your tax refund next year.

Jeff
birdy
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Post by birdy »

I know it is very scary to be laid off! Hubby got laid off 1 year ago (computer programmer with masters). Today we think he will finally be hired as a contractor!!!! His unemployment is based on his previous pay (Texas). We have been ok finance wise by having no debt at all at the time he lost his job. The unemployment and my job has been enough to make it without dipping into savings. Of course we also have changed how we spend our money: shopping at Goodwill, only eating out if we have a "buy one/get one free" (1/2 times per month), only going to the movies 1 time per month(first show $5, or $1 movie house), eating food from home for lunch at work and buying groceries with coupons. You have to have "some" fun so we decided not to cut out all the little extras. Has worked for us so far.

Hubby left his 401K at previous employer until the company folded and he had it transferred to Vanguard into Traditional IRA's.

It has been a very rude awakening for us that my husband has been unemployed for so long. It seems in his profession now, jobs are going overseas and to younger people who can afford to work for alot less. Experience seems to count for less and low salaries more the norm.

Good luck with the job search
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