| 401K Rollover post-tax contribution question? |
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cajuntank
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| 401K Rollover post-tax contribution question? |
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My wife had a 401K with a company she had worked for that got bought out. We have left it alone for several years and just the other day decided to roll it over to an IRA. Most of the money was pre-tax funded and a check was sent to her issued to the mutual fund company for that part of the 401K. We will send that check to the bank to open the IRA. The other part of the money from the 401K was post-tax funded and that check was issued to my wife in her name. As I'm being told, since we've already paid taxes on this money, there will not be a taxable event and we can do whatever we want with it. We initially thought we would just use this money to fund our Roth IRA's for this year, next, and fund some long term investments... but we later had the thought of paying off our house and balance on our vehicle which would put us totally debt free.
Would paying off the house be the better thing to do? Thoughts?
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Mon Dec 27, 2010 10:19 pm |
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oldguy
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quote:
but we later had the thought of paying off our house and balance on our vehicle which would put us totally debt free.
Would paying off the house be the better thing to do? Thoughts?
It can be argued both ways - some people have an emotional attachment to 'debt-free' - others want to invest and grow their wealth some more. For younger people it makes more sense to borrow at 5% and invest at 11% in equities and build wealth for a decade or two. For older people near retirement, it makes sense to own less equities and accept the 5% that prepaying a loan earns for you.
Bottom line - it's a personal call - the math might tell you one thing and the heart might tell you the opposite. Eg, I'm age 71 - and it still bothers me to pay cash for a new car, instead I finance it 100% and leave our money working for us in the equities market.
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Tue Dec 28, 2010 2:18 am |
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cajuntank
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I will turn 40 this coming year, so I have some time ahead of me (God willing  ) The peace of mind of having my house done with and being able to just have a good chunk of money every month to save toward investments and further retirement funding is appealing. I am already fully funding retirement accounts, so I would be "parking" the money somewhere anyway till I could use it for the Roth's.
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Tue Dec 28, 2010 7:08 pm |
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oldguy
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Cash: $ 751.85
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quote:
I am already fully funding retirement accounts, so I would be "parking" the money somewhere anyway till I could use it for the Roth's.
Good. One observation - your generation is focused on retirement accounts to the detrement of the old-fashioned taxable account. (the media has directed the focus of the young to Roths & 401ks)
IMO, you need to cover all three tax status categories - ie, pretax(401k), posttax(Roth), and taxable. That way you diversify your tax status, just as you diversify your investments. Eg, you don't want to reach age 65 and find yourself 100% in the wrong category, better to be only 33% wrong. It is a certainty that we cannot forecast the Tax Code, I've lived thru more tax code twists that you can imagine, the only certainty is that there will be changes. At any rate, you need a pre-59 1/2 wealth account as a fall-back EF, as an early retirement bridge, for extra weath building above the $16,500 and $5000 limits, etc.
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Tue Dec 28, 2010 7:56 pm |
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