>>>> David님이 정리하신 것을 대신 올려 드립니다.
I think we should remember types of 401k first.
Major Types of 401K plan
1. Traditional 401K – starting from 73, RMD applies. (Q: what’s the tax rate?)
2. Roth 401K – if 59.5year old+ and have had Roth for at least five years, tax free to withdraw. RMD applies as traditional 401K
3. Safe harbor 401K,
4. Simple 401K,
5. Solo 401K
401K Rollovers
After leaving the job, you will have to decide to roll 401K into an IRA or take distribution.
Basically, the author says it’s almost correct to roll over 401k into IRA accounts except some exceptions.
If you have Roth 401K account, rolling over into Roth IRA has more benefit since Roth IRAs do not require RMD. (Q: what about traditional 401K to traditional IRA roll over? What’s the tax % after retirement age?)
Reason Not to roll over a 401K:
-If you turn age 55 or older, and if you are separated from your job, or laid off, 401K distribution will not be subject to 10% additional tax. So, you may withdraw the 401K without worrying about 10% additional tax. (Q: what’s the 59.5 age threshold?)
-if you have traditional IRA and plan a Roth conversion, you may hold off rolling 401K till the year after you’ve executed the Roth conversion, so as to minimize the portion of taxable conversion. (Q: what’s the total taxable amount?)
- if 401K includes employer stock with significant appreciation, taking distribution may be better option. If you move employer stock into a taxable account, only your basis in the stock will be taxed until you sell, under “net unrealized appreciation” rule. (Q: is this only applicable for employer stock?). If you sell after one year, it will be taxed at long term capital gain tax rate (max 20%), compared to ordinary income tax (Q: what’s the %?).
By contrast, If you roll the stock withdrawal into IRA, the entire amount will count as ordinary income tax rate. ( Q: if the amount of distribution is more than IRA limit, what happens?)
Example:
Martha recently retired and she has $100,000 worth of company stock. The cost basis is $42,000.
1. If she rolls the $100,000 into an IRA, the entire amount is taxable as ordinary income. (Q: IRA has limit of contribution?? How can she roll $100K into IRA?)
2. If she rolls the $100,000 into a taxable account, she will be taxed with only $42,000 basis. When she sells after one year, the gain of $58,000 will be taxed as a long term capital gain (max 20%). If she’s under 55y, an additional 10% penalty added.
Q: what does it mean on 2nd bullet on page 69?
“If you left your job at age 55 or older, and you plan to retire prior to age 59.5, you may want to postpone rolling over your 401K until you reach age 59.5.
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