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You are here: Experts > People/Relationships > Retirement Planning > Retirement Planning > 401K
Expert: Willard R. Brumbaugh, LUTCF - 10/22/2009
Question
QUESTION: I am 55 years old. I was laid off almost 1 year ago, I left my 401K intact $200,000,00. What is the best way to handle this? Should I roll it to a traditional IRA, and would there be any tax penalties?
ANSWER: Dear Cary,
You most certainly should transfer your funds to an IRA. As to which IRA or IRAs, I need more information. Do you need to begin taking withdrawals? If not, when do you want to start taking distributions? Are you leery of additional stock market losses? What are your family concerns?
There is no tax charged for moving the 401(k) funds directly into an IRA. However, if you were to take the money in cash to be put into an IRA later, your former employer would have to withhold 20% ($40,000) and send it to the IRS. If you could not cover that 20%, you would be taxed and penalized for a premature distribution.
Willard R. Brumbaugh, LUTCF
CA License 0374776
www.willardbrumbaugh.com
(888) 792-2379
---------- FOLLOW-UP ----------
QUESTION: I plan to retire in 9 years at 64, and do not plan to take withdrawals/distributions until then. I am currently seeking employment so have no income at this time and my wife doesn't work.
I am always leery of stock market losses. My concern is I need to build the current 200 thousand for retirement. I have only 6,000.00 left to pay on my 400 thousand $ home.
Answer
Dear Cary,
On the basis of no current income, I suggest that you have two IRAs. Specifically, $50,000 in a laddered CD and the rest in a Fixed Annuity with the 8% Income Account Rider. This rider added to a 10% first year bonus would generate an income base of $330,000 in nine years from the $150,000 deposit.
This would not be the surrender value. The surrender value is calculated differently, the result being determined by the interest generated from either a traditional Fixed rate or the newer Indexed rate, less a .45% charge against earnings. Lest there be a misunderstanding, that is just under 1/2 of one percent.
I just learned that for the traditional Fixed Annuity the income rider fee is .30%. The current interest on the Fixed Annuity is 3.35%, thus the current net interest would be 3.05%. That is still better than most bank CDs.
With either of these annuities there is no stock market risk. Please call me for additional details.
Willard R. Brumbaugh, LUTCF
www.willardbrumbaugh.com
(888) 792-2379
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