Where should I put my 401(k) retirement money that I had with my previous employer?

I am 55 years old. My previous employer informed me that I have a couple options for receiving my retirement funds. One option is a lump sum. I am considering the lump sum because I need the money for home improvements and high credit card debt payments. I know I have to pay the 20% tax, but will I have to pay the 10% penalty? Should I get a withdrawal and roll over the balance into a Roth IRA that I have with my current employer?

Retirement, 401(k), IRAs
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September 2017

Hello,

You’re in a good luck because you’re age 55.  There’s a special rule of doing a rollover for age 55 employees separated from their employers.  If you intend to use a portion of the lump-sum for home projects and paying off debts, you should allocate that portion before the rollover.  There’s no 10% penalty, but you must pay the income tax.  You can roll the remaining balance to an IRA, not Roth for you don’t want to pay the hefty tax for a large lump-sum conversion.  Once the money is rolled into the traditional IRA, work with a CFP® and take your time to do the conversion so you don’t have to pay any extra tax.  Best!

September 2017
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September 2017