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Old 02-12-2017, 04:32 AM
 
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actually time late in life is not really a big factor since the taxes are going to be pretty much a wash assuming equal amounts .

markets can do nothing for a decade like 2000 or triple in a few years like 2008 .

the biggest question is what the conversion does for you bracket wise , if anything .

the biggest advantages of roths is doing them at the start of your career when you are in the lowest brackets and ramping up over decades and that is because our average tax brackets over decades of time ramping up are generally lower than our final ones at peak earnings .

since retirement is generally based somewhere around final earnings there is a good chance you will be in a higher bracket in retirement .


conversions make sense when you can fill the 15% bracket with money that will later be taxed t 35% with rmd's.


roths and traditional will always be close tax wise in the sense that we pay the taxes with money from outside the roth contribution but we never want to figure paying the same taxes with money from outside the traditional . so sure the roth looks better . you are paying the taxes with outside money
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Old 03-25-2017, 07:00 PM
 
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Default 401K withdrawals

One thing I am confused about with an old 401k from a company I no longer work for is: If I wait until some point beyond 59 1/2 y.o. (at 65 years old for example), to draw out the funds and do not roll it over, do I avoid taxes completely?

I know I need to wait until 59 1/2 to avoid the 10% penalty, but I am not sure if I benefit by keeping the money in the account for a period beyond that and draw it out later tax free. I would rather have the cash as opposed to putting it into an IRA when the time comes.
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Old 03-25-2017, 07:14 PM
 
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You avoid a penalty. That has nothing to do with owing taxes on the money. A 401k has an RMD age of 70 1/2. even if you wait until then, you owe the taxes. Rolling it over only delays that.

(If you're over 55 you can take the money out of the former company's 401k -- with no penalty -- but owe the taxes.)
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Old 03-25-2017, 07:26 PM
 
591 posts, read 247,675 times
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Quote:
Originally Posted by selhars View Post
You avoid a penalty. That has nothing to do with owing taxes on the money. A 401k has an RMD age of 70 1/2. even if you wait until then, you owe the taxes. Rolling it over only delays that.

(If you're over 55 you can take the money out of the former company's 401k -- with no penalty -- but owe the taxes.)
OK, I appreciate you clarifying that.
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Old 03-25-2017, 07:38 PM
 
Location: R.I.
970 posts, read 602,748 times
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Quote:
Originally Posted by AlmostSeniorinNJ View Post
One thing I am confused about with an old 401k from a company I no longer work for is: If I wait until some point beyond 59 1/2 y.o. (at 65 years old for example), to draw out the funds and do not roll it over, do I avoid taxes completely?

I know I need to wait until 59 1/2 to avoid the 10% penalty, but I am not sure if I benefit by keeping the money in the account for a period beyond that and draw it out later tax free. I would rather have the cash as opposed to putting it into an IRA when the time comes.
That is pretax money, so if you withdraw after age 59.5 you will avoid the 10% early withdrawal penalty, but you will be required to pay taxes on that money. If you roll it over to a similar account, when you begin to withdraw it you will still have to pay taxes on it.

And just to add to this, when my father passed I inherited $45,000 from his employment 401K account. I rolled that money into my own TSP/401K account. Although it is now lumped in with my own contributions I will still pay taxes on it because my father did not when I begin to withdraw it. My sister who was already retired when my father passed also inherited $45,000 from my father's 401K. She chose to take a full cash withdrawal and I believe 20% was taken out in taxes and she was sent a check for the balance.
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