Leamnson Capital Advisory, LLC
Founder and President
I am the founder and president of Leamnson Capital, a fee-only, a Registered Investment Advisor firm in Reston, VA. I work with people serious about preparing for and getting through retirement. Typically, they are in their fifties or already retired. I have over 30 years of experience in the financial services industry.
I live in Reston, VA with Cathy, my wife of 34 years and our two Akita's, Titus and Kaylee. On weekends, we enjoy spending time with their pups, taking them for walks on the Reston trails. We both enjoy bicycling, yoga, and regular workouts at the gym. We spend time visiting the many beautiful Virginia wineries — doing our small part to support the growing Virginia wine industry.
Assets Under Management:
That's a great question. And good for you for thinking so deeply about your finances at a very young age. Very impressive! Now to the question.
Here is my formula for to achieve financial freedom:
- Spend less than you make
- Save and invest the difference
- Avoid debt, especially high-interest credit card debt
A 6 -7 percent student loan debt is not what I would call high-interest debt. And if that is the only debt you carry, and you can comfortably make the payments and still save, an argument can be made to stay the course.
Here's something else to consider. If you paid off those student loans more quickly, say in 8 years vs. 15 and put the payments you were making on the loans into your retirement accounts, how much more would that add to the retirement pot?
Without the actual numbers (how much is going to your Roth and 457(b), amount of your loan payments), it's impossible to calculate the actual numbers. You can do this yourself, though. Calculate how much more you would have at your 5% rate if you put the money into your retirement accounts vs. staying on the loan repayment schedule.
And don't forget, you're adding 6-7 percent to the cost of that money every year the loan is unpaid. Look at the loan principal and payment schedule and total up the interest saved for whatever period you reduce the loan by (8 years, 5 years, etc.). That savings can also go to your retirement accounts.
I think you'll find you'll be way ahead by paying off the debt early and putting that money to work in your retirement accounts or other investments.
Kudos again for trying to get this right. I hope this is helpful. Good luck!
Done properly, moving money from your 401(k) to an IRA is an easy, tax-free exchange. There are two ways to move the money - direct and indirect transfer.
In a direct transfer, your 401(k) plan administrator either moves the funds or cash (if funds are sold) directly to the trustee (custodian) of the IRA. This can happen electronically or via a check made payable to the custodian on your behalf (something like XYZ company, custodian for the IRA of your name). You never personally take receipt of the money.
In an indirect transfer, a check for the balance of the 401(k) is made payable to you. You then have 60 days to get that money into an IRA. If you miss the 60-day window, the amount of the check becomes fully taxable. In an indirect rollover, the IRS requires the plan administrator to withhold 20% of the amount out for taxes. So, you get the remaining 80%.
As you can clearly see, the direct transfer is the simplest and safest way to move the money. Virtually any IRA custodian will allow this transfer.
To the second part of your question, any money pulled out of an IRA is fully taxable for the year in which it was withdrawn. This assumes that all the money was contributed pre-tax. If you are under age 59 1/2, an additional 10% penalty gets tacked on to the tax bill.
Hope this helps.
I'm a little confused by your description. I'll do my best to answer based on my understanding.
If you roll over a Roth 401(k) to a Roth IRA and take distributions from the Roth IRA, the Roth IRA distribution rules apply. If the Roth is 5 years old and you are over age 59 1/2 (which you don't say in your question), then all distributions are tax and penalty free. If you are not yet age 59 1/2, any contributions withdrawn are tax-free. Earnings would incur the 10% early withdrawal penalty.
So, if both are 5 years old, you should be able to withdraw money from either account without tax or penalty (again, assuming you're over age 59 1/2). To be sure, your best bet is to do a direct rollover (trustee to trustee transfer) of your Roth 401(k) to the Roth IRA. Assuming you are over 59 1/2, all withdrawals will be tax and penalty free.
Since I'm guessing at some of the circumstances, I would urge you to talk to a CPA or tax accountant with the specifics so they can give you a clear answer. Good luck!
There's not enough information to give a clear answer. I'll try to sort it out the best I can with what you've offered.
How is the 401(k) invested? Retirement plans offer mutual funds or exchange-traded funds (ETFs) as their investment choices. These funds pay dividends, not interest. The securities the funds invest in pay interest to the fund. The fund, in turn, pays dividends to the shareholders (he is a shareholder of funds in his 401(k)). So I assume that's what you're referencing when you say interest.
Any distributions from 401(k) plans, regardless of their source, get taxed. So that, by definition, reduces his distribution.
If, by reducing his distribution, you're referring to his required minimum distribution (RMD) because he's over 70 1/2, then yes, distributions will count toward satisfying his RMD. Be very careful if this is the case. Not taking out enough to satisfy the RMD requirement is costly. The IRS imposes a 50% penalty on the entire amount you were supposed to have taken if you don't take enough. So, make sure you get this right.
I'm sorry I couldn' be more helpful. I just don't have enough information to give you the best answer. I hope this at least provides some guidance. Good luck!
No, it will not be taxable.
You can contribute up to $18,500 to your 401(k) in 2018. If you're age 50 or over, you can add an additional $6,000 (a catch-up contribution) for a total of $24,500. That amount is adjusted for inflation every year. All money contributed to your 401(k) is pre-tax.
Putting in more than your company matches has nothing to do with taxes. It just means you don't get a match.