IRA Rollover

Archive for June, 2006

Question: Can I rollover 401k funds into an IRA?

I’m buying my first home and want to take some funds from my 401k. According to my employer and the 401k administrator I have $28k available to take. I only need about $18k. Since this is an early distribution, I’m subject to taxes plus a penalty (I’m 25). But let’s say i only use $10k for the down payment. Can I rollover the other $8000 into a traditional IRA? (it will be within 60 days).

Answer: Actually you don’t have to pay any penalties!! A withdrawal from an IRA can be made early under only a few circumstances. One of those circumstances is if you are using the money to make a down payment on your first home. Just call the IRS, get the number from IRS.gov to double-check. That should save you a few grand.

So in order to get the most out of your situation start by setting up an IRA. You should hopefully be able to do an ACAT transfer from your 401k supplemental account directly into your IRA. An ACAT transfer is different than a rollover. A rollover is a complicated tax transaction, an ACAT transfer is just moving the balance from one account to another. As long as the two accounts are similar, the IRS doesn’t care. All you are doing is moving money around. For example, if you have an IRA set up at a bank, you can ACAT that to a different bank without any need for a rollover. You are just changing banks. You can also move it to a brokerage account with scottrade or whatever the heck you want. (As long as you set up an IRA brokerage account with scottrade or whatever you are fine).

You are moving enough money around too that it might be worth talking to a tax consultant. They may save you thousands and only cost you a few hundred at most. Give it some thought.

401k Rollover Advice Avoiding The 20% IRS Penalty by Bill Losey, CFP.mp4