zewcrew@[EMAIL PROTECTED]
wrote:
> Hi,
> I'm looking for a little advice on what I should do with money I have
> in a 401A. I was working in a public agency position where my
> retirement was put in a 401A and the funds were taxed by the state
> government but not the federal government, so upon withdrawal the
> federal government will want their share. There is only about 16,000
> in the account, so I think if I flat out withdraw it I will get about
> 11,000. My new job offers a 401K and from what I understand the 401A
> can't roll over into this, but it can a regular IRA. I would like to
> start a Roth, but I think in order to do this I would need to withdraw
> the money and be taxed on it and then start the Roth. I would like to
> move it out of the 401A so I can actively contribute to it, but the
> question is where to and how?
First - I'd be very careful tracking this - as you describe it, the
funds were taxed by the state, so on withdrawal, they shouldn't be taxed
again. Converting to a Roth at some point will help put an end to that
separate tracking. I'd suggest you look at
http://www.fairmark.com/refrence/index.htm
and understand the tax bracket you fall into. You should consider
rolling the funds to a regular IRA first, and then deciding when to
convert any/all funds to a Roth. My approach is to deposit or convert to
Roth in a relatively low bracket year or at retirement, and use pretax
deposits in the higher bracket years. I also strongly suggest never
converting the IRA to Roth in a year you can't afford to pay the tax out
of your pocket (i.e. not out of the IRA funds). The amount not converted
is subject to 10% penalty plus the tax.
Joe
www.blog.joetaxpayer.com
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