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-   -   Considering emptying 401K plans? (http://forums.pelicanparts.com/off-topic-discussions/1020606-considering-emptying-401k-plans.html)

group911@aol.co 02-09-2019 09:46 PM
Quote:
Originally Posted by gchappel (Post 10349438)
No I do not need the lump sum for anything. I was surprised at the medicare income "penalty" of over $7000 a year on medicare alone. Expect all these type income deductions to continue to escalate. Some politicians are asking for 90% income taxes, or at least increasing taxes. Just trying to plan ahead. Thanks for the thoughts.
Gary
Wow. Who reading this forum is going to fall into the 90% bracket?

gchappel 02-10-2019 02:32 AM
Thanks, interesting thoughts. One adviser is recommending rolling slowly into a roth plan. Just wanted to make sure I was at least thinking about maximizing my spendable income.
thanks all
Gary

hcoles 02-10-2019 05:12 AM
This is interesting. Please post anything you find re. converting IRA to Roth IRA or slowing rolling.
The calculation may vary depending on what state you are in. I'm in CA so....

ckelly78z 02-10-2019 05:13 AM
Quote:
Originally Posted by gchappel (Post 10349619)
Thanks, interesting thoughts. One adviser is recommending rolling slowly into a roth plan. Just wanted to make sure I was at least thinking about maximizing my spendable income.
thanks all
Gary
Rolling it slowly into a Roth would eliminate being taxed again, but i'm not sure why you don't just withdraw what you need from the 401K, and use the money when you need it, and leave the remainder alone. I can't imagine taxes rising enough in 10 years to offset the fees.

flatbutt 02-10-2019 05:18 AM
Why not a tax free lump sum roll over into another investment fund like a mutual?

KFC911 02-10-2019 05:42 AM
If anyone is significantly younger than 60, and "retires" early, make sure you understand IRS 72(t) distributions. Use them to your advantage if you can....I have ;).

Sooner or later 02-10-2019 05:57 AM
If you convert from a 401k to a Roth you will still pay taxes on rhe conversion amount. You have paid no taxes on the 401k money and only pay taxes on what you withdraw. A Roth is taxes up front and you pay nothing on withdrawal.

If you move 100,000 you could be liable for 37,000 in fed taxes due to the move.

Always make transfers between institutions. If you get an actual transfer check for it will be 20% short due to mandatory withholding. Let's say you ask for a 100k transfer by check. The check will be for 80k. You have, I think 60 days, to fully fund the new retirement account with 100k. You will also be responsible for any taxes above the 20% that has already been held out.

KFC911 02-10-2019 06:08 AM
I played this game since it began, three different times...I always had an institution pull my 401k into a SEPERATE IRA...day 1 I left each major corportion. Everything else varies so much....you've recieved good advice in this thread....but none of it applied/applies to me...you...who knows? YMMV....

Then I took control....no regrets.

Sooner or later 02-10-2019 06:14 AM
Quote:
Originally Posted by KC911 (Post 10349728)
I played this game since it began, three different times...I always had an institution pull my 401k into a SEPERATE IRA...day 1 I left each major corportion. Everything else varies so much....you've recieved good advice in this thread....but none of it applied/applies to me...you...who knows? YMMV....

Then I took control....no regrets.
You should nearly always move 401k to an traditional IRA when you leave a company.

masraum 02-10-2019 06:44 AM
Quote:
Originally Posted by Sooner or later (Post 10349737)
You should nearly always move 401k to an traditional IRA when you leave a company.
Why is that?

Sooner or later 02-10-2019 06:55 AM
Quote:
Originally Posted by masraum (Post 10349765)
Why is that?
In most cases you have limited choices within a companies 401k. You can move into a traditional IRA and have nearly unlimited choices.

KFC911 02-10-2019 07:15 AM
Quote:
Originally Posted by Sooner or later (Post 10349780)
In most cases you have limited choices within a companies 401k. You can move into a traditional IRA and have nearly unlimited choices.
^^^This....Most HR types gave bad advice...for years NO one, and I mean financial guys too...had a clue about early access...penalty free. Had to school an IRS guy too...once ;).

fintstone 02-10-2019 07:31 AM
Quote:
Originally Posted by group911@aol.co (Post 10349584)
Wow. Who reading this forum is going to fall into the 90% bracket?
Almost all of us if they want to eliminate aircraft and internal combustion engines, natural gas (and other fossil fuels), provide healthcare for all, guaranteed income for all (whether they choose to work or not), nice homes for everyone, free food and free college for everyone in the next 10 years (as they have suggested). There are just not that many billionaires to rob.

fintstone 02-10-2019 08:44 AM
Quote:
Originally Posted by fintstone (Post 10349478)
My humble...but perhaps ignorant position. Drawing out funds while taxes are low may be a good idea if you have a specific purpose (buying a house, etc.). Especially if you do not need the funds during retirement or can save significant interest on another loan. Personally, I don't see money used to purchase tangible things like real estate or pay off a home in the same category as spending money on a car or vacation or living expenses..as homes retain a good deal of value, generally appreciate and can be sold or rented to recoup the money.

If your other taxable income is not expected to go down significantly in the future (to reduce your rate/bracket) and you want to start taking out money, it seems that the best bet is drawing out as much as you can without going into the next bracket. For example, if you are in the 24% bracket ($84,201 to $160,725) and are making about $85K...you could take out about $75K without going up to the next tax bracket of 32%.

The biggest drawback is that you lose the advantage of postponement of taxes (gain on the part that you will pay as taxes). 24% of the $75K is $18K. By drawing out the $75K this year and paying the $18K in taxes, you will not get interest/gain/etc. on the $18 that goes to IRS. Of course, if in a state that has state tax, it would work the same...usually an additional 5% or so.
But don't forget that bracket is based on how you file...so if married filing jointly, 24% goes all the way from $165,001 to $315,000 (before you move to the 32% bracket).

RWebb 02-10-2019 02:11 PM
Quote:
Originally Posted by Sooner or later (Post 10349780)
In most cases you have limited choices within a companies 401k. You can move into a traditional IRA and have nearly unlimited choices.
This may make the most sense. But you will need to weigh adv.s in terms of expenses in the 401k (are they high? is there an exit penalty (back end fee)) with any advs. in funds you control.

I'd likely move $$ into a Roth - slowly a bit every year.

Then there is the future - Required Min. Distributions (RMDs) are several years away for you, but are impending.

It is a good bet that taxes will go up as the most recent tax "cut" (for some) has really ratcheted up the national debt, and somebody will have to pay - maybe Gen Z but maybe you...

There will also be substantial infrastructure costs in 10, 20, 30 years - partly because the current infrastructure is crumbling from old age, but -worse- coastal states will be inundated while the West will burn. The insurance co.s have already figured this out but may not tell you what is what, they have simply stopped writing policies in some areas. You will need a larger safety margin to deal with those things.

Even if you are in a 'safe' area, people will move to where you are driving costs up. This is already happening in So. FL as the rich move to higher ground in formerly poor or middle-class areas. That can help you (if selling) or hurt you (if they increase taxes to gt services they want/are used to).

dan88911 02-10-2019 06:35 PM
As to the issue of taxes. You can pay those taxes now on your terms and at historically low rates,or you can pay them on the IRS's terms at some unknown point (and tax rate) in the future.

dan88911 02-10-2019 06:38 PM
Between now and 2026, you have an unprecedented window of opportunity for paying historically low rates.

gchappel 02-10-2019 06:50 PM
Quote:
Originally Posted by dan88911 (Post 10350581)
Between now and 2026, you have an unprecedented window of opportunity for paying historically low rates.
That is exactly my reason for looking into paying the taxes now. Noone can predict the future- but I strongly suspect income taxes to rise.
Gary

tubwreck 02-11-2019 12:18 AM
If you the need the money for current expenses:

In December of each year, determine the tax band that your RMD places you in. Take an additional distribution large enough to bring you to the top of that bracket.

Keep in mind that while tax rates are likely to rise, there will be at least one year's warning. If, in December, it is known that rates are going to rise in the following year, and if your following year's RMD will place you in a higher bracket, then increase your additional distribution to the limit of your new bracket, assuming that the next higher bracket this year is at a higher rate than your new bracket.

If you do not need the money for current expenses:

Use the above procedure, but do a Roth conversion with the excess distribution.

It is unlikely that the IRS will start taxing 401(k) and IRA distributions at a different rate than regular income; rates may go up, but they will continue to be strongly progressive.

KFC911 02-11-2019 01:54 AM
Everyone's situation is different....figure out what you can make work...for YOU. I disagree with, and have followed a different path than virtually everything suggested here. Pulled 401k(s), from two (now mega-banks), and another biggie corp when I retired @48....during the darkest daze of late '08. My way probably isn't your way.

I also am extremely gifted with math....(minor in Quantitative Analysis)....most on this board are imo.

1 + 1 = 10 ;)


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