Retirement Planning/401K after 70 1/2

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Question
Hello David,

I'm 72. I retired when I was 69, and haven't worked since. Before turning 70, I contacted several times my ex-employer's HR and the investment company that holds my 401K, and asked them what should I do about the 70 1/2 distribution in order to avoid tax penalties, but they said I had to do nothing, but now I got a distribution from the fund. They're keeping almost $200 tax from approx. $900 distribution, so I'm getting only about $700.

What I'd like to do is get the money out and move it to either an IRA or Roth-IRA, but all the information I find about doing so, talks about people at a younger age. At my age, what would be the pros and cons of a rollover to an IRA vs a Roth-IRA?

Thanks in advance,

Richard

Answer
Hi Richard,
These companies are required to withhold 20% of any distributions for federal taxes. Depending on your income, you could owe more or less when you file taxes. So there is a chance you could get some or all of that withholding back at tax time. Yes, you are best to rollover your 401k when leaving an employer. You will have more investment options and could put it into something totally safe if you wished. You may also save money on fees because it can be difficult to see what some of these 401k companies are charging you annually. You may also be able to avoid the withholding on your Required Minimum Distributions. This is what the $900 was, a required minimum distribution. You do not want to rollover to a Roth IRA at this point because you would be taxed on any amount you rolled over. At your age, there is no way any future tax savings of the Roth would offset the amount you were taxed. A traditional IRA is your best bet.

I hope this helps. Best of luck!

Dave

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David M Iannopollo

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I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances. I can also show you how to take advantage of the stock market gains without the risk of loss!

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