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Is it good idea to diversify some of my 401k into a separate traditional IRA?
I have all my retirment savings in my employer's traditional 401k program and I am 100% vested. I'am wondering if it is a good idea to take a half of that value and roll over into a traditional IRA with a different investment company. It's attractive since I will have more choices of investment, plus its money no longer having any connection with my employer and totally under my control.
What frightens me though is if I could be boxing myself into a corner later in life when I want to withdraw the money. Not sure if I would hit maximum limits. Though very unlikely, if I ever withdrew the money early would I be hit with more complicated withdrawal penalties and fees? Would management fees eat up more of my savings? Any advise or if you could share resources appreciated. Example data as follows:
Age: 38
Amount in current 401K = 50K
Amount thinking of rolling over = 25K
Thanks, the 401k is with my current employer. I spoke to the 401k administrator and they said it is okay to roll over part into a traditional IRA with another administrator. Does that change your advise or do you think I'm being given wrong info? Appreciate your response.
1 Answer
- efflandtLv 71 decade agoFavorite Answer
If that 401k is with a "current" employer, you cannot withdraw or transfer any of it anyway.
But IRA and 401k annual contribution limits are completely separate (except that being "eligible" for an employee plan may limit deductions for traditional IRAs). So you could adjust your 401k contributions and start putting something into a Roth IRA or traditional IRA to play around with other investments ($5000 total for any or all IRAs combined).
The advantage of deductible contributions to a traditional IRA is that if you have some losses, at least you never paid tax on it. Roth IRA contributions are not deductible, but can be good as a portion of an emergency fund, because the already taxed contributions can be withdrawn at any time without penalty (the gains have to remain until age 59.5 and at least 5 years after you opened your first Roth IRA).
IRS Publication 590 covers IRAs.
