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socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33559
Experience:  Retired (mostly)
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I have been out of work for nearly 1 year and am eating through

Customer Question

I have been out of work for nearly 1 year and am eating through my savings. I have two 401K plans at 2 different employers that I no longer work for. I want to consolidate these 2 401K accounts into a single IRA type account to avoid the early tax liabilities of cashing out my 401Ks. If I am unable to find employment in the next 4 months I will need to withdraw from this new IRA type account. What type of account do I need to do this? Are there accounts like this that have no fees, which you can manage yourself?
Submitted: 3 years ago.
Category: Tax
Expert:  socrateaser replied 3 years ago.

Typically, the 401(k) is converted into a "rollover IRA" by the investment institution where you create the account. The firm will handle the rollover details. If you want to consolidate the accounts, you can do so, however, were you ever rehired by the original employers, consolidating funds would prevent you from putting the money back into the employer's 401(k) (not that you would ever want to do this).

 

Re accounts that you can manage yourself, there are dozens of companies that do this (e.g., www.fidelity.com) Note: this is not a recommendation of an investment firm. It's just an example.

 

Hope this helps.

 

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Customer: replied 3 years ago.
One of my 401K plans is already with Fidelity the other one is with Pentegra. What I don't like about these companies is I don't know what their fee schedule is.

What are the limitations/penalties for the rollover IRA?

If I plan to use the money for education purposes (for myself) is there a tax penalty? What would be a better plan?
Expert:  socrateaser replied 3 years ago.

A rollover IRA is no different than any other IRA, except that it is intended to receive 401(k) funds, which are not inteded to be commingled with ordinary annual IRA contributions (e.g., contributions by a worker who has no employer-sponsored plan).

 

Penalty for early withdrawal before 59.5 years is 10% and the withdrawal is treated as ordinary income -- exactly as with any other IRA.

Customer: replied 3 years ago.
Isn't there a IRA account that can be used for education expenses? Is this just limited for a child under 18 years old?

What exceptions are there for early withdraw from a rollover IRA? ie to purchase a house
Expert:  socrateaser replied 3 years ago.

Yes, there is, but you can take distributions from any IRA account to pay for qualified higher education, prior to reaching 59.5, without incurring the 10% penalty.

 

 

Customer: replied 3 years ago.
Relist: Incomplete answer.
I would like to get an answer from an expert, such as an accountant. The answers are incomplete and the pro is a lawyer/real estate agent, not an accountant
Expert:  socrateaser replied 3 years ago.

You mean that if I were to say that I'm a tax attorney in my profile (which I am, among other things) that you would believe me to be sufficiently expert?

 

My answers are acccurate. But, I don't want to disuade you from getting an answer from a real expert, so I will bow out.

 

Peace.

Customer: replied 3 years ago.
Thank you.
Expert:  socrateaser replied 3 years ago.

Sorry, but when you sent your "thank you," it put this correspondence back into my inbox. Plese don't respond to this, so that the process can move forward.

 

Thanks for your cooperation.

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