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2007 XT - 5MT ELH, EWG, E85, Kinugawa TD06SL 20G 8cm
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Discussion Starter #1 (Edited)
Looking for a large investor forum, to help me decide how to consolidate my retirement accounts, in order to maximize earnings and minimize tax burden at retirement age.

I have three retirement accounts:

1. First Former Employer 401K at Fidelity
2. Last Former Employer 401K at Swab
3. Roth IRA at Fidelity

I would like to consolidate all accounts into one, perhaps roll over everything into the existing Roth IRA at Fidelity since my tax bracket now is at the lowest it will ever be (unemployed since 3/09). I will start a job in 2010 (well at least I hope) so the decision to roll over into the Roth has to be before the end of 2009 taking advantage of my low tax bracket.

I am leaning towards a Roth IRA vs a Traditional IRA since in a Tradional IRA I will pay deferred taxes on the principal AND ON ANY EARNINGS ACHIEVED UNTIL RETIREMENT AGE, where in a Roth IRA I will only pay taxes (at a very low tax bracket for being unemployed) now on the principal and additionally I will let future earnings grow tax free.

I know there are some advantages of a traditional IRA over a Roth IRA but I am not a first time home buyer nor I have plans to tap into my retirements savings so the IRA advantages over the Roth do not benefit me.

Is my rational correct, or can anyone recommend any financial forums to post my case?
 

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1998 Forester
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I am an investment advisor (in NJ) and the answer is there is no right answer for everyone. The biggest determining factor on whether a Roth or traditional makes sense is the amount of time you have until you will begin drawing on the the IRAs and of course...any pre-tax contributions in the 401-K will have to be taxed when converting to a ROTH...for some that might be a huge current tax bill.

Here is a pretty good online calculator to help with the decision.

Roth Retirement

Also if interested I offer a subscription investment newsletter that specifically helps self directed investors navigate the markets and manage a solid portfolio. Not sure about the rules so I won't post like here but if interested PM me and I will give you the info.

Good Luck.
 

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12 Premium 5-speed
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Thanks for chiming in. I have a conversion question for you: When going from traditional to Roth do the taxes come out right of the retirement account, or instead from your income (when one files the 1040)?

In other words, if I have $100k to convert and am sitting in a 33% bracket, does $33k disappear from the new Roth account or am I faced with a $33k burden on my 1040?
 

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1998 Forester
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602 Posts
Thanks for chiming in. I have a conversion question for you: When going from traditional to Roth do the taxes come out right of the retirement account, or instead from your income (when one files the 1040)?

In other words, if I have $100k to convert and am sitting in a 33% bracket, does $33k disappear from the new Roth account or am I faced with a $33k burden on my 1040?
You usually want to pay from funds outside of the IRA because if you are under 59 1/2, you will pay the same early withdrawal penaly of 10% for using the IRA funds to pay the tax. That will most likely make the conversion not worth it. So only convert the portion of the account you can afford the tax bill on. If you are over 59 1/2 you can use IRA funds without penalty but since you have a limited time horizon till withdrawals, it might not make economic sense to convert.
 

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2007 XT - 5MT ELH, EWG, E85, Kinugawa TD06SL 20G 8cm
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Discussion Starter #5 (Edited)
Thanks for chiming in. So basically there is two tax burdens, right?

1. 10% Early withdrawal penalty (only applicable if funds to pay income tax below comes from IRA account)

2. 20-40% Income Tax Bracket
 
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