Rollover IRA question...?

Question

I quit my job and have a question regarding my traditional 401k...I would like to transfer my 401k into some type of IRA with fidelity. From my understanding there is a Rollover, Roth, and Traditional IRA available. I need to know the difference between them and which to go with. Will I be able to make contributions to one of these IRAs? My main concern is why would I want to make after-tax contributions to a traditional IRA only to have to pay taxes AGAIN once I withdraw? Can someone clear this up for me? Thanks.

Ok, I now understand the difference between them but will I be able to make contributions (out of my own pocket) to my regular/rollover IRA? How can this be possible without being taxed twice on this money (since it is tax-deffered)?

Answer 1

You can still make the contributions.... the 401K and TRADITIONAL IRA are the same---deferred.... its just with a traditional you adjust the funding on your tax form.....


The Roth is AFTER TAX....you do NOT roll a 401k or Traditional IR|A to a Roth, unless you have extremely small balances and want to pay the immediate 10-20% penalty PLUS regular income tax on the money....

Answer 2

Funds from a 401k can currently be transferred by Direct Rollover only to a Traditional IRA (Rollover or Conduit). Currently, the IRS does not permit a direct transfer to a Roth IRA.

Is is possible for a Traditional IRA to contain BOTH pre-tax and after-tax dollars. You, as the participant, will be required to track your after-tax (non-deductible) contributions to your plan on IRS Form 8606 when you file each year. Once you begin withdrawing, this form should help you identify which funds are taxable and which funds are taxable only on the interest earned so that you are not "double taxed" on the principal of your after-tax contributions.

The ability to contribute to your Traditional IRA (Rollover or Conduit) varies between institutions. Some will allow you to add to the existing plan and tracking of the pre-tax or after-tax dollars will be up to you as stated above. Some institutions may prefer you to keep these funds seperate and request that you open a Traditional IRA (Contributory) to receive any future deductible contributions you may make.

When deciding which plan to go with, you may want to seek tax advice prior as there are AGI limitations on certain plans which may make you ineligible to have while other plans may better suit your needs.

Answer 3

Rollover just means that the money came from some other plan, It could be either a Roth, or traditional. A traditional IRA is funded with pretax dollars - you pay taxes when you withdraw from it. If you transfer your 401K into a rollover tradional IRA, you won't pay and taxes at the time of the transfer.

A Roth IRA is funded with after-tax dollars. You don't pay tax when you withdraw from it assuming you meet the requirements. If you transferred your 401K into a Roth IRA, you'd have to pay tax now on the total amount that you transfer.

It is possible under some circumstances to put after-tax dollars into a traditional IRA. If you have that situation, there is a form you have to fill out and file with the IRS to show that tax has already been paid on that amount, so you don't have to pay them again when you withdraw that money. Most of the time, if you make contributions to a traditional IRA, you deduct them in the year you make them, so they are pre-tax dollars.

Answer 4

roll over the 401k account into a regular IRA - a rollover /Traditional IRA is the same thing - "Rolling it over" from the 401k just ignores the current year contribution limits - and there is no tax effect now. You don't want to convert it to Roth - that will cost you a big chunk in taxes right now. - there's n reason to do that. You can probably roll it over to an IRA with th same firm that handles your 401lk (Fidelity, etc) and maybe even keep the same investment selections - just call the 401k company and ask

Answer 5

The regular IRA and the roll-over IRA contain pre-tax dollars, just like your 401k did. So that's where the 401k money should go.

A Roth IRA is after tax money, so that's not what you need right now.

Answer 6

i coming in after your comment which i am a little confused by == if you have the Roth you can add additional and it will still be after taxes =-= if you have the regular ira it will be pre tax money just like the initial roll over account -- you can not mix the two!!!