I've got about $30,000 sitting in an old 401(k) account from an
old job I quit several years ago to become a stay-at-home dad. I
want to get this money out and put it somewhere where I can continue
to add money monthly (my wife works full time). What is my best
option? Thanks for any help! -- Tony Traverse
Moving the money out of the 401(k) account is easy; just open an
IRA Rollover Account and transfer the money. A direct transfer from
your 401(k) account to the IRA Account is preferable because if
the check is made out to you, the distribution is subject to mandatory
withholding and you'll have to scramble to replace the 20 percent
($6,000) withheld so you can fully fund the IRA Rollover Account
and then wait until you file this year's tax return to get the money
If the 401(k) account holds shares of company stock,
you should talk to your tax adviser about whether the IRA Rollover
is the right move for you. It may be better to have those shares
delivered into a taxable brokerage account.
Though current tax law allows new contributions to
an IRA account to be commingled with IRA Rollover monies, I'd keep
the accounts separate unless the cost savings from commingling the
funds makes it worthwhile. By doing so, you preserve the ability
to move the IRA Rollover account into a new employer's 401(k) plan.
If your wife is covered by an employer plan at work,
your ability to contribute to a spousal IRA may be limited. IRS
Publication 590, Individual Retirement Arrangements (IRAs),
has more details. Otherwise an automatic investment plan (AIP) with
an IRA account provider will allow you to add money to the account
monthly. I'd suggest opening an account directly with a no-load
mutual fund family to hold down fees and expenses in this account.
Figure out where you want to invest the Rollover IRA
account, and then work with that account provider to do a direct
transfer from your 401(k) account into the rollover account.