What is the difference between a Roth IRA & an IRA & how do I roll my 401k into one of these?

Answer 1

To roll it over you should talk to an investment professional like a financial planner or visit a website like vanguard. Whoever you speak to should be quite thorough in asking you about your goals, timeframe, and what you envision for your future. You should do your homework and find out how they are compensated (high fees can crush your returns). Choose someone with at the very minimum 5 years of experience (if you choose to work with a professional), and preferably a CFP designation. If you want to go it alone, the information you seek is readily available on the internet and in various literature, but you need to be prepared to invest the time needed to educate yourself properly.

An IRA (individual retirement account) is pre-tax money, the IRS hasn't taken it's share out of this yet, just like your 401k. If you roll your 401k into an IRA, it won't be taxed. The money accumulates tax free, and when you withdraw the money, the IRS takes its share. The idea is that in retirement, your income will be in a lower tax bracket so when you withdraw the cash, it will be a lower percentage than when you earned your paycheck. In addition, since the money goes in pre-tax, you can earn returns on all those dollars that would have gone to the government. The thing is, when those earnings come out, they're ALL taxed. Generally, if you withdraw from an IRA before the age of 59.5, there is a 10 percent early withdrawal penalty in addition to the IRS income tax (which sucks, avoid this if possible). After the age of 70.5, there are mandatory distributions, which means you have to take money out every year (which also sucks because this could bump up your income to a higher tax bracket)..

With a Roth IRA, the money that goes in is after tax money (already paid uncle sam). The money accumulates tax free, just like the IRA. There is also the 10% early withdrawal penalty (there are exceptions like 72T extension but you should talk to a financial professional for more detailed info, or ask the Oracle named google). When the money comes out, however, everything is federal tax free. In addition, there is no mandatory withdrawal. Also, you can pass a Roth IRA on to your beneficiaries tax free, they do not have mandatory withdrawals either. What sucks about this that if you roll your 401k into your roth IRA, you will pay taxes on everything in your 401k as it goes into the Roth.

Regardless, you have 60 days from receiving your 401k check to roll it over (NOT 2 MONTHS), otherwise you get nailed for 10% for withdrawing early. So if you have the check already, you'd better get moving.

Answer 2

A Roth is where you pay taxes on money going in and IRAs are where you pay taxes when you take the money out. The Roth also had a system allowing you do not spend the money or a little bit of the money and give the rest to heirs. With an IRA, you have to take out the money when you are in your 70s.

When you retire, you must put your 401K in an IRA. If you want to put the money in a Roth, you will have to pay income taxes on that amount. This can benefit the heirs since they can get a tax free system of income.

Answer 3

The main difference is that with a Roth IRA you pay the taxes on the money you put in, therefore not ever having to pay taxes on them again. Whereas an IRA you pay the taxes when you take the money out.

Rolling a 401K into an IRA depends on both the terms of contract for your IRA and the 401K. Talk to your agent that you have your IRA through and they can help you do that.

Answer 4

Roth is after tax dollars and the limits and withdrawal rules are different. IRA is pre tax dollars and the limits and withdrawal rules are a little more stringent than the Roth. As far as putting your 401K in one of these all you have to do is let you bank know which one you want and they will set it up and roll your money in to that account. They will also help you decide which IRA plan would be better for your situation.

Answer 5

In a traditional IRA, earnings are federal income tax deferred until distribution (that may began at 59 1/2). In a Roth IRA, contributions MAY be withdrawn federal income tax free abd IRS penalty free at any time. To roll your 401K over you will most likely have to contact the company where the account is housed (like Fidelity).