February 18, 2010 1:41 PM
- Text
Your Money Matters
(CBS)
In the series "Ask It Early," "Early Show" money maven Ray Martin answered questions submitted by viewers, and he provides the answers in this column.
Question from Dave in Kingston, N.Y.:
"I'll be switching jobs in the near future, and I would like to move my 401K over without losing any contributions. How can I go about doing that the best way?"
Ray's Answer:
You can move your 401K plan. Most new employers plans allow you to roll over your 401K from your old employer into your new employer's plan, you just got to get the instructions from your new employer's plan, find out where they need to receive the money, call up your old plan's record keeper and say, "I want to roll over to my new employer's 401K," fill out some forms and paperwork.
They wire the money or they'll send you a check payable to your 401K plan, which you then send in to your new employer's plan tax-free, and then you continue your contributions into your new employer's 401K, and you've already got a head start because you got your old balance in there.
Have a question for Ray? E-mail him!
Question from Ann, of Shokan, N.Y.:
Ann and her husband received a large tax refund (over $5,000) and want to use it as an emergency fund, but still invest it wisely. They want it to be liquid, but still pay a decent return.
Ray's answer:
Let's assume for the sake of this question that you have been a good doobie and already have these bases covered:
1) A EMERGENCY FUND of cash in bank accounts equal to at least six months living expenses, and
2) NO CREDIT CARD OR OTHER HIGH INTEREST RATE DEBT and
3) MAXIMIZING MATCH AND CONTRIBUTIONS TO RETIREMENT PLANS.
So what to do with an extra $5,000? I'd suggest opening and funding a ROTH IRA. Here's why:
1) TAX AND PENALTY FREE WITHDRAWALS:
Distributions of Roth IRA assets from your contributions and from nontaxable conversions of Traditional IRA can be taken at anytime, tax and penalty free - that is, if the distribution is in line with the rules that exempt assets from income tax and early-distribution penalties. So your contributions can be withdrawn tax and penalty free, but you'll just have to leave your earnings in the account.
2) INVESTMENT FLEXIBILITY:
When you open a brokerage account titled as a Roth IRA, you can invest in virtually any listed stock, bond, mutual fund and even CDs issued by FDIC insured banks. Choose an investment that meets your objectives for safety, risk, growth and time frame.
3) ROTH IRA TAX BENEFITS:
If you open a Roth IRA and invest in a few funds, etc., and you do not need to use the money until after retirement all of your withdrawals after age 65 - contributions and earnings -- are tax free. Better yet, you are NOT required to take any minimum distributions from your Roth IRA after age 70.5, so you can leave the account to grow for a very long time.
The annual amount you can contribute to a Roth IRA in 2009 is $5,000 and $6,000 for anyone who is 50 or older.
Who is eligible to open a Roth IRA?
The eligibility rules are pretty simple -- anyone can contribute to a Roth IRA, regardless of age. All you need to be eligible for a Roth IRA contribution is some amount of taxable compensation. Compensation includes salaries, wages, tips, bonuses, fees, and any other amount you've received for providing a service to others.
The annual amount you can contribute to a Roth IRA in 2009 is $5,000 and $6,000 for anyone who is 50 or older.
To be eligible to make a Roth IRA contribution in a given calendar year, there is a income limit. If your adjusted gross income exceeds these limits, then you are no longer eligible to contribute to a Roth IRA.
In 2009, the adjusted gross income limits are:
Single filers, Head of Household or Married Filing Separately (and you did not live with your spouse during the year) with modified adjusted gross income up to $105,000 can make a full contribution. Contributions are phased out starting at $105,000 and you cannot make a contribution if your adjusted gross income is in excess of $120,000.
Joint filers with modified adjusted gross income up to $166,000 can make a full contribution. Once again, this contribution is phased out starting at $166,000 and you cannot make a contribution if your adjusted gross income is in excess of $176,000.
If your tax filing status is Married Filing Separately (and you live with your spouse) you cannot make a Roth IRA contribution if your AGI is in excess of $10,000.
Question from Dave in Kingston, N.Y.:
"I'll be switching jobs in the near future, and I would like to move my 401K over without losing any contributions. How can I go about doing that the best way?"
Ray's Answer:
You can move your 401K plan. Most new employers plans allow you to roll over your 401K from your old employer into your new employer's plan, you just got to get the instructions from your new employer's plan, find out where they need to receive the money, call up your old plan's record keeper and say, "I want to roll over to my new employer's 401K," fill out some forms and paperwork.
They wire the money or they'll send you a check payable to your 401K plan, which you then send in to your new employer's plan tax-free, and then you continue your contributions into your new employer's 401K, and you've already got a head start because you got your old balance in there.
Have a question for Ray? E-mail him!
Question from Ann, of Shokan, N.Y.:
Ann and her husband received a large tax refund (over $5,000) and want to use it as an emergency fund, but still invest it wisely. They want it to be liquid, but still pay a decent return.
Ray's answer:
Let's assume for the sake of this question that you have been a good doobie and already have these bases covered:
1) A EMERGENCY FUND of cash in bank accounts equal to at least six months living expenses, and
2) NO CREDIT CARD OR OTHER HIGH INTEREST RATE DEBT and
3) MAXIMIZING MATCH AND CONTRIBUTIONS TO RETIREMENT PLANS.
So what to do with an extra $5,000? I'd suggest opening and funding a ROTH IRA. Here's why:
1) TAX AND PENALTY FREE WITHDRAWALS:
Distributions of Roth IRA assets from your contributions and from nontaxable conversions of Traditional IRA can be taken at anytime, tax and penalty free - that is, if the distribution is in line with the rules that exempt assets from income tax and early-distribution penalties. So your contributions can be withdrawn tax and penalty free, but you'll just have to leave your earnings in the account.
2) INVESTMENT FLEXIBILITY:
When you open a brokerage account titled as a Roth IRA, you can invest in virtually any listed stock, bond, mutual fund and even CDs issued by FDIC insured banks. Choose an investment that meets your objectives for safety, risk, growth and time frame.
3) ROTH IRA TAX BENEFITS:
If you open a Roth IRA and invest in a few funds, etc., and you do not need to use the money until after retirement all of your withdrawals after age 65 - contributions and earnings -- are tax free. Better yet, you are NOT required to take any minimum distributions from your Roth IRA after age 70.5, so you can leave the account to grow for a very long time.
The annual amount you can contribute to a Roth IRA in 2009 is $5,000 and $6,000 for anyone who is 50 or older.
Who is eligible to open a Roth IRA?
The eligibility rules are pretty simple -- anyone can contribute to a Roth IRA, regardless of age. All you need to be eligible for a Roth IRA contribution is some amount of taxable compensation. Compensation includes salaries, wages, tips, bonuses, fees, and any other amount you've received for providing a service to others.
The annual amount you can contribute to a Roth IRA in 2009 is $5,000 and $6,000 for anyone who is 50 or older.
To be eligible to make a Roth IRA contribution in a given calendar year, there is a income limit. If your adjusted gross income exceeds these limits, then you are no longer eligible to contribute to a Roth IRA.
In 2009, the adjusted gross income limits are:
Single filers, Head of Household or Married Filing Separately (and you did not live with your spouse during the year) with modified adjusted gross income up to $105,000 can make a full contribution. Contributions are phased out starting at $105,000 and you cannot make a contribution if your adjusted gross income is in excess of $120,000.
Joint filers with modified adjusted gross income up to $166,000 can make a full contribution. Once again, this contribution is phased out starting at $166,000 and you cannot make a contribution if your adjusted gross income is in excess of $176,000.
If your tax filing status is Married Filing Separately (and you live with your spouse) you cannot make a Roth IRA contribution if your AGI is in excess of $10,000.
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