SEP IRA

Archive for April, 2007

Question: Questions about AMERICAN FUNDS exchanges…?

My company does a quarterly contribute to American Funds on my behalf. I originally chose 3 funds. We’ll call them fund A, fund B, and fund C. IF I exhchanged all of fund C, and bought a new fund..called fund D. Here are my questions.

1. Will my company now contribute to my new fund D?
2. Will my company still contribute to only funds A,B, and C?
3. Will my fund C dissappear now since I did exchange all for fund D?

4. If Fund C, is gone now because I chose to invest it all into Fund D, will my company only contribute to fund A and B and make me reliable for Fund D on my own?

I hope I didnt make this to complicated.
I do not contribute to these funds, only the company I work for contributes, as their compensation for our retirement.
These are not roth,Ira, etc. and this in not any of the 401k plans etc. just a simple my company and I can both contribute to these funds, and my company will contribute quarterly for as long as I work for them.

Answer: Normally, how a 401k works is you fill out a form at the beginning of the sign up period telling the administrator how you want your money distributed among the funds and that is how it is distributed until the next sign up period at which time you can change the way your money is allocated.

To receive a concise answer to this question, you really need to ask the fund administrator. Any answers on our part is meerly conjecture.

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Question: Can I have SEP IRA accounts at two different brokerage firms? Is this OK with the IRS??

I want to open SEP IRA accounts – one for stocks at Charles Schwab and one SEP IRA account at another firm (www.trustetc.com) to invest in real estate.

Answer: Yes. The IRS only cares about the SS number and the total you put in for the year.

Question: should i convert to roth ira?

when i convert or if i convert how is my 401k money taxed, possibly at my high tax rate today? wouldn’t i be better off to get taxed at a lower tax rate when i retire? what are the simple principals to evaluate here?

Answer: Try this article:

“Converting a 401k to a Roth IRA”

http://www.your-roth-ira.com/convert-a-401k-to-a-roth-ira.html

Your 401k conversion funds are taxed according to your current income tax rate (your rate in the year of your conversion). So, yes… It might be a better idea to wait until you’re in a lower tax bracket.

However, keep in mind that the longer you wait (assuming your 401k rises in value), the larger your tax bill. Unless you have the cash savings to pay that tax bill, you’ll need to use funds from your 401k. Prior to age 59.5, using those funds will trigger a 10% early withdrawal penalty on top of the regular income taxes.

Also, why convert right before you retire? If you simply leave the money in your 401k and withdraw it as you need it, you’ll pay regular income taxes on it. If you convert it to a Roth IRA, you’ll also pay regular income taxes on it. So what’s the benefit? Unless you plan on leaving the majority of your 401k to your heirs, you need to run the numbers and figure out if it makes sense to convert at all.

Hope this helps…

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