On Mar 12, 4:20 pm, joetaxpayer <joetaxpa...@[EMAIL PROTECTED]
> wrote:
> marckas...@[EMAIL PROTECTED]
wrote:
> > Hello, I have invested in my first 401k for one month (January 2008)
> > before getting laid off. Good start for retirement savings, huh!?
> > Now that I am doing my 2007 taxes and would like to invest 4k into an
> > IRA. So here are a few questions that I can't seem to get answered
> > from what I have read, and forgive me for my ignorance but investing
> > is fairly new to me so perhaps in laymen terms would be best.
> > What is the best way to rollover my 401k into an IRA or a Roth IRA if
> > possible? I understand that there is a direct rollover plan but I am
> > unsure if I can use this to rollover in an IRA and Roth IRA. And what
> > about the fact I started this 401k this year in January, does that
> > matter?
> > Also is it common to see in ones ****tfolio an IRA and Roth IRA? I am
> > thinking about doing this because I don't know if I would want the tax
> > deferred or exempt; which seems to me it's like having one foot on ice
> > and the other on fire.
>
> You have two things going on;
> If you had earned income in 2007, you may deposit the $4,000 into an
> IRA. How much did you earn in 2007? Do you think you will find a new job
> in 2008? I suggest the deductible IRA for 2007, and request a direct
> transfer of the 401(k) money into that account this year.
> My opinion on Roth is that people earning low incomes (15% Federal
> bracket or lower) may be better off with a Roth, others should convert
> based on changes in bracket. Maybe you were in the 25% bracket in 07.
> $4000 will get you back $1000 in taxes. In 08, if you are not employed a
> few months, you may be in the 15% bracket. You convert and pay $600 in
> tax. You are ahead $400. This is a simple example, but should help
> illustrate my thoughts. If you have any follow on questions, come back.
> Those here are kind, knowledgeable, and wish to help.
>
> Joewww.blog.joetaxpayer.com
>
Joe is giving you excellent advice.
To elaborate- the 401k and IRA are seperate entities (I think you knew
that).
The IRA could be either traditional deductable IRA, a traditional non
deductable IRA or a Roth IRA.
If you are in 25% tax bracket and eligible for the deductable, Joe's
advice was to do that.
If you are in 15% tax bracket and eligible for the Roth Joe's advice
was to do that.
unless I misinterpreted his advice.
In general, opt for the Roth over a traditional non deductable IRA.
Rollover- a rollover IRA just keeps the tax deferred status of the
401k. It does not affect the status directly for any of the above.
I have a Roth and a rollover. Both with around 50k in them. It is
OK. I might choose to convert the Rollover to a Roth a little bit at
a time as part of tax planning each year, but that is not im****tant to
this discussion.
Joe did mention doing a rollover to Roth conversion as tax and
investment planning going forward. Good advice, I would start simple.
Look at what taxable income is on the tax return- this established tax
bracket. Depending on if you are married or single will affect what
rate is applied to that taxable income.
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