Your 401k vs Roth IRA Q&A

One of the biggest dilemmas when it comes to retirement savings is the 401k vs. Roth IRA choice.

You could probably have a Roth IRA, a 401k or both.

The following questions and answers are based on real-life situations that will give you an insight into the 401k vs. Roth IRA decision:

Should I roll over my 401k to Roth and withdraw the money?

John is 36 and was laid off from work last month. He has $42,000 in his 401k. He is wondering whether he should do a 401k rollover to Roth IRA and then cash out on it. With this money, he would like to pay for his car and credit card debt with some left over for his mortgage. He would also like to invest $5000 in individual stocks.  

In general, it is not a good idea to touch your retirement money for any short-term needs unless you have no other alternative. Instead, it is a good idea to look at different ways of cutting costs and saving money. In fact, any extra expenses towards cable television, cell phones, magazine subscriptions and similar costs should be cut down.

The next priority if are unemployed is your mortgage. It is a secured loan and you stand to lose your home if you default on the payments. Therefore, it is best to pay only the minimum on your car loan and credit card to make the available money last longer. If you really want to do a 401k rollover to Roth, wait for a while because you have until 2011 and 2012 to pay your taxes on the rollover.

When you do the rollover, you will need to pay income tax on the entire amount. When you withdraw it, you must pay a ten percent penalty. As soon as possible, find another job.

Can I invest in both a company 401k and an individual Roth IRA?

Mike is 54. He would like to know the maximum he can invest in a company 401k and an individual Roth IRA. He also wants to know if he can contribute to a fund for his non-working spouse who is the same age as he is.

As a taxpayer who is more than 50 years old, in 2010, Mike can contribute $6000 to his Roth IRA. His earned income from work must be at least the same as his IRA contribution. If he is married and files a joint income tax return, he can also contribute to an IRA for his non-working spouse. For 2010, his maximum contribution to his 401k will be $22,000. What Mike must remember is that he can still contribute to his accounts and have them marked as contributions for 2009 until April 2010.

Mike can invest for his non-working spouse as long as he meets the income requirements.

Can I fund a 401k, an IRA and a Roth?

Martin is 65 years old and, in 2009, has contributed $6000 to his Roth IRA.

He has a little over $10,000 in his 2009 401k. He wants to know whether he can contribute to his regular IRA for 2009.

Martin has maxed out his contribution to his IRA, because he is allowed a maximum of $6000 in both IRAs combined.

If he has a spouse, he can contribute $6000 to her account if she is over age 50, and $5000 if she is under age 50.

Do you have questions related to your unique situation?

Get in touch with an expert financial consultant such as Zecco/Tradeking for non-biased advice.

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