Get smart with your money
If you leave a job or retire, you’re often encouraged to roll over your 401(k) or other workplace retirement account into an individual retirement account. That might not be the right move.
In my latest for the Associated Press, why having more investment choices isn’t necessarily better.
Today’s top story: 5 options for your money before student loan payments resume. Also in the news: Why the freelancing boom may change how you buy life insurance, 4 signs we’re in a housing market primed for regret, and how to invest in real estate with your IRA.
5 Options for Your Money Before Student Loan Payments Resume
February will be here before you know it.
The Freelancing Boom May Change How You Buy Life Insurance
How life insurance planning differs for freelancers.
4 Signs We’re in a Housing Market Primed for Regret
Looking out for buyer’s remorse.
How to Invest in Real Estate With Your IRA
You can buy it, but you can’t live in it.
Dear Liz: I owe $360,000 on my mortgage. I have sufficient funds in my IRA to pay this amount off without depleting income distribution for the next 20 years. I am currently paying $1,100 monthly on an interest-only loan, but I have to start making much larger principal payments in November 2022. Would you advise withdrawing IRA investment monies (and taking a tax hit) to pay off the full loan amount, or simply getting a conventional mortgage and live with a higher payment ($1,500) each month? I am 77 and retired now for four years.
Answer: Making that large a withdrawal will almost certainly hurl you into a much higher tax bracket and increase your Medicare premiums. Refinancing the mortgage while rates are low likely makes the most sense, but consult a tax pro or a fee-only financial advisor before making any big moves with retirement funds.
Today’s top story: Should you save less for retirement? Also in the news: Can student loan forgiveness happen, a new congressional proposal would require IRA/401(k) withdrawals to start at 75, and how to spot fake reviews on Amazon.
Should You Save Less For Retirement?
An extremely early retirement goal may rob you of the joy of living now. Consider a revised path and second career.
Can Student Loan Forgiveness Still Happen?
Debt forgiveness of $10,000 would cancel debt entirely for about 15 million borrowers, according to a NerdWallet analysis of federal data.
Required IRA, 401(k) withdrawals would start at age 75 under congressional proposal. Here’s who would benefit
How your retirement savings might be affected.
How to Spot Fake Reviews on Amazon
Those five stars might be bought and paid for.
Dear Liz: I am a 27-year-old with a big investment question. The company I work for matches 401(k) contributions up to 9%, which is all well and fine since I contribute enough to receive the company match. I have just about $60,000 in my 401(k) and I have a Roth IRA on the side as well as a brokerage account for stocks. I would like to roll over my 401(k) into another IRA since the investment choices in the 401(k) are rather limited. I’m a big fan of investment diversification with different funds. Is this a good option to choose or is this a silly idea with no merit? I understand the tax implications involved but am willing to bite the bullet for more investment options.
Answer: Good for you for being so diligent about saving for retirement. Your early start should give you a lot of options when you’re older.
For now, your question has an easy answer. Typically, you can’t roll a 401(k) account into an IRA while you’re still working for the employer that provides the 401(k).
There are a few exceptions. Once you turn 59½, some plans do allow such rollovers. Also, a few plans offer “mega backdoor Roths” that allow you to contribute after-tax money to a 401(k) and then do an “in service” conversion to a Roth IRA. This option helps high-income people get around the income limitation that would otherwise prevent them from contributing to a Roth IRA.
You will have the option of rolling your money into an IRA once you leave your job, but don’t assume such a rollover is always the right choice.
Most 401(k)s offer enough options to give you plenty of diversification, plus you may have access to low-cost institutional funds that wouldn’t be available in an IRA. You’re also protected by federal law that requires the companies offering 401(k)s to act as fiduciaries — in other words, they must put your best interests first. You often have the option of rolling your 401(k) balance into a new employer’s plan, which means you would be able to take loans from the plan. That’s not an option with an IRA.
There are no tax implications for rolling over a 401(k), by the way. Only if you convert the money to a Roth IRA will you owe taxes. A conversion may make sense, but you’ll want to talk to a tax pro first.
Dear Liz: Due to the pandemic, I did not work during 2020. Can I contribute to a spousal IRA for 2020 since my husband still has an income and will be contributing to his Roth IRA? Does it need to be a separate account from my existing IRAs?
Answer: As long as your husband has earned income, you can contribute to your IRA. You don’t need to set up a separate account to make this spousal contribution.
Whether or not your contribution is deductible will depend on your income and whether your husband is covered by a workplace retirement plan such as a 401(k). If he’s not, your spousal contribution is fully deductible. If he is covered, then your ability to deduct your contribution phases out for a modified adjusted gross income of $196,000 to $206,000.