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L1: 401KI will be 61 years old next month (December 2009). I am thinking of working through 2010 and then retiring first part of 2011 (will turn 62 end of 2010). I have my 401k through my company which has contracted Fidelity to administer, and I am not required to move it after I retire. My question is: Can I just leave it where it is (Fidelity) and start taking out distributions, if needed? Or is this a dumb move? Don’t all flail۝ me at once_ I just didn’t want the hassle to have to roll over to an IRA and transferring the money to another financial institution/advisor, etc. I will be receiving a pension (monthly annuity) though my company and also plan to start drawing on my social security and am hoping not to have to tap۝ into it anytime soon. Also, if I take any distributions, since I will be 62, I am assuming that I will just have to pay income tax on it and no other penalties?2009-11-03 17:00, By: KenK, IP: []
L2: 401KPLEASE talk to a financial planning and/or tax advisor to PLAN your retirement.You are correct that once you passed 59 1/2 you are no longer subject to the 10% penalty for “early distributions”.Rolling over a 401-K to an IRA or another financial institution is not really a hastle. Just a few forms to sign. Most 401-K plans have limited choices for your investments during retirement, while brokerage houses and mutual fund families (even Fidelity) have unlimited investments available in IRAs.From a TAX standpoint, I always recommend that clients invest the “equity” part of their TOTAL portfolios outside of their retirement plans, provided that they are “long-term” investors, rather than “traders”. The reason for this is the preferential tax rate on long-term capital gains on investments held at least 1 year ( 15% vs 25%-35% for distributions from retirement plans/IRAs). Why pay an extra 10%-20% on the gains? Also, losses are deductible on investments outside of a retirement account, but not for those within retirement accounts.Further, fixed interest investments are ideal within retirement accounts becuase the interest earned would have had the same tax rate if earned outside of a retirement account as the tax rate on these amounts when distributed from a retirement account.401-K accounts are only allowed to invest in mutual funds. I prefer picking specific fixed interest investments, corporate and government bonds and notes, CDs (laddered), preferred stocks, etc. which have specific maturities, rather than long-term bond mutual funds which will “automatically” decline in value if interest rates increase, unless you are investing in bond funds of 5 years or less in maturities.In addition, you should reconsider your “decision” to start SS at 62 because of the 25% decrease in your benefits, for life. If your family history and current health seem to indicate a reasonable life expectancy to age 78 or longer, and/or you have a spouse, then you should wait at least until 66 to start SS benefits at the “full/normal retirement age”, and possibly even until 70 at which time you would receive 32% higher SS benefits than the 66 amount for the rest of your life, and then also your surviving spouse’s life. During this deferral period, you would draw down from your retirement account(s). By the way, because only 85% of SS benefits are taxed, you would save the taxes on 15% of the 32% “bonus benefits” from SS.Also, you could do some part-time work without worrying about the SS earnings limits and penalties between 62 and 66.Finally, you could juggle your IRA withdrawals so as to stay under the 15% tax bracket limit, and thereby pay taxes on your pension at only 15% rather than 25% or more.As you can see, there are many nuances to retirement planning that you should consider BEFORE deciding what to do.Lastly, check with your employer to see if there is NUA (Net Unrealized Appreciation) EMPLOYER STOCK in your 401-K. If so, there are tremendous additional tax benefits by utilizing this other tax provison PROPERLY to your benefit. I saved a client $100,000 in federal taxes using this provision.2009-11-03 19:07, By: dlzallestaxes, IP: []

L3: 401KThanks for your input. Appreciate your timein answering my questions. Ken2009-11-05 14:41, By: KenK, IP: []

L2: 401KHello, KenK:As a 1st step, allow me to suggest that you review the Summary Plan Document (SPD) for your 401k plan. Although these tend to contain loads of info, they are often not particularly well structured for easy reading. Be that as it may, it should contain the info you need to determine if you can leave your 401k plan with Fidelity.Your HR department should be able to tell you this as well.> My question is: Can I just leave it where it is (Fidelity) and start taking out distributions,> if needed? Or is this a dumb move? Don’t all flail۝ me at once_OK, we won’t. We’ll form a gauntlet that you have to run through where we can all flail you individually as you run past. Ha ha… just kidding! If your 401k plan allows you to leave the money where it is after you separate from service AND allows partial distributions, then you can do this. As Dlz points out, though, you might not want to do this because there are MANY types of investments available in a self-directed IRA that are not available in a 401k plan. The flexibility of an IRA is a key feature and one that is well worth having. Also, you need to ask yourself what you are paying for fees in your 401k. Chances are, you don’t know for sure because this info is often buried under a blizzard of info from the investment company. It’s possible that they are higher than you want to pay. If so, then moving your money to a discount broker, such as Scottrade, TD Ameritrade, or Vanguard might be of benefit to you.If you decide to keep your money at Fidelity but not in a 401k, they will make the rollover process exceptionally painless. By signing a couple of forms and sending them in, the rollover could be accomplished very quickly and easily. Moving your money to a different custodian is also possible but I can safely guarantee you that it will take more time and effort. I went through this with Fidelity and it took me almost 3 months, 2 letters, and 6 phone callsto accomplish the transfer from an account that was 100% in cash at the time.Deciding when to take social security may be one of the biggest guesses we all have to make. Yes, we do our best to make this an educated guess but that is about the best we can do with it. Getting fewer but larger checks vs. more but smaller checks has many potential pitfalls. In general, you should start taking SS when you need it and not before then. If your health is good, you take good care of yourself, and your family history demonstrates good genes for longevity, THEN you should delay taking SS until later on. By waiting until age 70, you can maximize the amount you get per month in benefits. On the other hand, if your health is not so good, you don’t exercise, you smoke, are over-weight, and your genes do not demonstrate good longevity, THEN you take SS ASAP. Obviously, there will be many finer points to this than I mention here but this is a decent outline of the reasoning that people usually follow when trying to make a good decision on when to take SS. Personally, I know what I am going to do for sure… and then I changemy mind on it aboutevery 3-4 weeks! 2009-11-03 22:30, By: Ed_B, IP: []

L3: 401KEd: Apprieciate your time and advice. Thanks very much. Ken2009-11-05 14:43, By: KenK, IP: []

L4: 401KYou’re more than welcome, Ken. I’ve learned a LOT from the good folks on this web site and am happy to contribute to the discussion when I can.2009-11-05 17:13, By: Ed_B, IP: []